The hydrophobic effect is the observed tendency of nonpolar substances to aggregate in an aqueous solution and to be excluded by water.  The word hydrophobic literally means "water-fearing", and it describes the segregation of water and nonpolar substances, which maximizes the entropy of water and minimizes the area of contact between water and nonpolar molecules. In terms of thermodynamics, the hydrophobic effect is the free energy change of water surrounding a solute. A positive free energy change of the surrounding solvent indicates hydrophobicity, whereas a negative free energy change implies hydrophilicity.
The hydrophobic effect is responsible for the separation of a mixture of oil and water into its two components.  It is also responsible for effects related to biology, including: cell membrane and vesicle formation, protein folding, insertion of membrane proteins into the nonpolar lipid environment and protein-small molecule associations.  Hence the hydrophobic effect is essential to life. Substances for which this effect is observed are known as hydrophobes.