Membrane proteins that transport hydrophobic compounds have important roles in multi-drug resistance1,2,3 and can cause a number of diseases4,5, underscoring the importance of protein-mediated transport of hydrophobic compounds. Hydrophobic compounds readily partition into regular membrane lipid bilayers6, and their transport through an aqueous protein channel is energetically unfavourable3. Alternative transport models involving acquisition from the lipid bilayer by lateral diffusion have been proposed for hydrophobic substrates3,4,7,8,9,10,11,12. So far, all transport proteins for which a lateral diffusion mechanism has been proposed function as efflux pumps. Here we present the first example of a lateral diffusion mechanism for the uptake of hydrophobic substrates by the Escherichia coli outer membrane long-chain fatty acid transporter FadL. A FadL mutant in which a lateral opening in the barrel wall is constricted, but which is otherwise structurally identical to wild-type FadL, does not transport substrates. A crystal structure of FadL from Pseudomonas aeruginosa shows that the opening in the wall of the β-barrel is conserved and delineates a long, hydrophobic tunnel that could mediate substrate passage from the extracellular environment, through the polar lipopolysaccharide layer and, by means of the lateral opening in the barrel wall, into the lipid bilayer from where the substrate can diffuse into the periplasm. Because FadL homologues are found in pathogenic and biodegrading bacteria, our results have implications for combating bacterial infections and bioremediating xenobiotics in the environment.