We introduce here a novel Monte Carlo simulation method for studying the interactions of hydrophobic peptides with lipid membranes. Each of the peptide's amino acids is represented as two interaction sites: one corresponding to the backbone α-carbon and the other to the side chain, with the membrane represented as a hydrophobic profile. Peptide conformations and locations in the membrane and changes in the membrane width are sampled using the Metropolis criterion, taking into account the underlying energetics. Using this method we investigate the interactions between the hydrophobic peptide M2δ and a model membrane. The simulations show that starting from an extended conformation in the aqueous phase, the peptide first adsorbs onto the membrane surface, while acquiring an ordered helical structure. This is followed by formation of a helical-hairpin and insertion into the membrane. The observed path is in agreement with contemporary understanding of peptide insertion into biological membranes. Two stable orientations of membrane-associated M2δ were obtained: transmembrane (TM) and surface, and the value of the water-to-membrane transfer free energy of each of them is in agreement with calculations and measurements on similar cases. M2δ is most stable in the TM orientation, where it assumes a helical conformation with a tilt of 14° between the helix principal axis and the membrane normal. The peptide conformation agrees well with the experimental data; average root-mean-square deviations of 2.1 Å compared to nuclear magnetic resonance structures obtained in detergent micelles and supported lipid bilayers. The average orientation of the peptide in the membrane in the most stable configurations reported here, and in particular the value of the tilt angle, are in excellent agreement with the ones calculated using the continuum-solvent model and the ones observed in the nuclear magnetic resonance studies. This suggests that the method may be used to predict the three-dimensional structure of TM peptides.