Cholesteryl ester transfer protein (CETP) facilitates the transfer of cholesteryl esters (CEs) from antiatherogenic high-density lipoproteins to proatherogenic low-density lipoproteins. Inhibition of CETP is therefore being pursued as a potential strategy to reduce cardiovascular risk. The crystal structure of CETP has revealed the existence of two neutral CEs and two charged phospholipids (PLs) in its hydrophobic tunnel. This is in direct contrast to the other lipid-binding proteins that contain only two bound lipids. Moreover, previous animal studies on mice showed no detectable PL-transfer activity of CETP. Thus, the role of bound PLs in CETP is completely unknown. Here, we employ molecular dynamics simulations and free-energy calculations to unravel the primary effects of bound PLs on CETP structure and dynamics and attempt to correlate the observed changes to its function. Our results suggest that the structure of CETP is elastic and can attain different conformations depending on the state of bound PLs. In solution, these PLs maintain CETP in a bent–untwisted conformation that can uphold neutral lipids in its core tunnel. Results also suggest that although both PLs complement each other in their action, the C-terminal PL (C-PL) imparts greater influence on CETP by virtue of its tighter binding. Our finding fits very well with the recent inhibitor-bound CETP crystal structure, where the inhibitor displaced the N-terminal PL for binding to CETP’s central domain without disrupting the binding of C-PL. We speculate that the observed increased flexibility of CETP in the absence of PLs could play a crucial role in its binding with lipoproteins and subsequent lipid-transfer activity.