Late embryogenesis abundant (LEA) proteins have been found in a number of anhydrobiotic (i.e., a state of anhydrobiosis or life without water) organisms that are adapted to severe water deficit as a result of extreme drought and cold in nature. However, the precise mechanism by which LEA proteins protect the organisms in response to water depletion remains to be defined. Because protein functions are generally determined by its structure, molecular dynamics simulations were performed in this study to understand the structure and its stability of a 66-amino acid fragment of a group 3 LEA protein from an anhydrobiotic nematode during desiccation. It was found that, unlike the vast majority of proteins, the fully hydrated LEA protein in an aqueous solution is by and large unstructured (mainly in the form of random coils and turns). The protein gradually becomes folded into a hairpin-like, double-bundled, alpha-helical 3D conformation in response to the loss of water. Major structural formation was observed to occur only when the water content is less than about 20 wt %. It was further found the protein structure and its stability during desiccation are determined primarily by hydrogen bonding interactions followed by electrostatic interactions, both of which are a result of the extremely hydrophilic nature of the LEA protein. The Lennard-Jones interactions (van der Waals interactions) are the least important in determining the protein structure and its stability during water deficit.