Understanding how nanomaterials interact with cell membranes is related to how they cause cytotoxicity and is therefore critical for designing safer biomedical applications. Recently, graphene (a two-dimensional nanomaterial) was shown to have antibacterial activity on Escherichia coli, but its underlying molecular mechanisms remain unknown. Here we show experimentally and theoretically that pristine graphene and graphene oxide nanosheets can induce the degradation of the inner and outer cell membranes of Escherichia coli, and reduce their viability. Transmission electron microscopy shows three rough stages, and molecular dynamics simulations reveal the atomic details of the process. Graphene nanosheets can penetrate into and extract large amounts of phospholipids from the cell membranes because of the strong dispersion interactions between graphene and lipid molecules. This destructive extraction offers a novel mechanism for the molecular basis of graphene's cytotoxicity and antibacterial activity.