In this study, the interplay between water and lipid dynamics has been investigated by broadband dielectric spectroscopy and modulated differential scanning calorimetry (MDSC). The multilamellar lipid bilayer system 1,2-dimyristoyl-sn-glycero-3-phosphocholine (DMPC) has been studied over a broad temperature range at three different water contents: about 3, 6, and 9 water molecules per lipid molecule. The results from the dielectric relaxation measurements show that at temperatures <250 K the lipid headgroup rotation is described by a super-Arrhenius temperature dependence at the lowest hydration level and by the Arrhenius law at the highest hydration level. This difference in the temperature dependence of the lipid headgroup rotation can be explained by the increasing interaction between the headgroups with decreasing water content, which causes their rotational motion to be more cooperative in character. The main water relaxation shows an anomalous dependence on the water content in the supercooled and glassy regime. In contrast to the general behavior of interfacial water, the water dynamics is fastest in the driest sample and its temperature dependence is best described by a super-Arrhenius temperature dependence. The best explanation for this anomalous behavior is that the water relaxation becomes more determined by fast local lipid motions than by the intrinsic water dynamics at low water contents. In support for this interpretation is the finding that the relaxation time of the main water process is faster than that in most other host systems at temperatures below 180 K. Thus, the dielectric relaxation data show clearly the strong interplay between water and lipid dynamics; the water influences the lipid dynamics and vice versa. In the MDSC data, we observe a weak enthalpy relaxation at 203 K for the driest sample and at 179 K for the most hydrated sample, attributed to the freezing-in of the lipid headgroup rotation observed in the dielectric data, since this motion reaches a time scale of about 100 s at about the same temperatures.