The deformation free energy of a lipid bilayer is presented based on the principle of a continuum theory. For small deformations, the free energy consists of a layer-compression term, a splay-distortion term, and a surface-tension term, equivalent to the elastic free energy of a two-layer smectic liquid crystal with surface tension. Minimization of the free energy leads to a differential equation that, with boundary conditions, determines the elastic deformation of a bilayer membrane. When a dimeric gramicidin channel is formed in a membrane of thickness greater than the length of the channel, the membrane deformation reduces the stability of the channel. Previously this effect was studied by comparing the variation of channel lifetime with the surface tension of bilayers (Elliott, J. R., D. Needham, J. P. Dilger, and D. A. Hayden, 1983, Biochim. Biophys. Acta, 735:95-103). The tension was assumed to pull a dimer for a distance z before the channel loses ion conductivity. To account for the data, z was found to be 18 A. With the deformation free energy, the data can be accounted for with z less than or approximately to 1 A, which is consistent with the breaking of hydrogen bonds in a dimer dissociation. Increasing the strength of lipid-protein interactions is not the only consequence of the complete free energy compared with the previous discussions. It also changes the shape of membrane deformation around an embedded channel from convex to concave, and increases the range of deformation from less than 10 A to greater than 20 A. Clearly these will be important factors in the general considerations of lipid-protein interactions and membrane-mediated interactions between proteins. In addition, thermal fluctuations of a membrane are calculated; in particular, we calculate the relations between the intrinsic thickness and the experimentally measured values. The experimental parameters of monoolein-squalene membranes are used for quantitative analyses.