The ability to harvest light effectively in a changing environment is necessary to ensure efficient photosynthesis and crop growth. One mechanism, known as qE, protects photosystem II (PSII) and regulates electron transfer through the harmless dissipation of excess absorbed photons as heat. This process involves reversible clustering of the major light-harvesting complexes of PSII (LHCII) in the thylakoid membrane and relies upon the ΔpH gradient and the allosteric modulator protein PsbS. To date, the exact role of PsbS in the qE mechanism has remained elusive. Here, we show that PsbS induces hydrophobic mismatch in the thylakoid membrane through dynamic rearrangement of lipids around LHCII leading to observed membrane thinning. We found that upon illumination, the thylakoid membrane reversibly shrinks from around 4.3 to 3.2 nm, without PsbS, this response is eliminated. Furthermore, we show that the lipid digalactosyldiacylglycerol (DGDG) is repelled from the LHCII-PsbS complex due to an increase in both the p of lumenal residues and in the dipole moment of LHCII, which allows for further conformational change and clustering in the membrane. Our results suggest a mechanistic role for PsbS as a facilitator of a hydrophobic mismatch-mediated phase transition between LHCII-PsbS and its environment. This could act as the driving force to sort LHCII into photoprotective nanodomains in the thylakoid membrane. This work shows an example of the key role of the hydrophobic mismatch process in regulating membrane protein function in plants.