Membrane proteins are crucial in transport, signaling, bioenergetics, catalysis, and as drug targets. Here, we show that membrane proteins have dramatically fewer detectable orthologs than water-soluble proteins, less than half in most species analyzed. This sparse distribution could reflect rapid divergence or gene loss. We find that both mechanisms operate. First, membrane proteins evolve faster than water-soluble proteins, particularly in their exterior-facing portions. Second, we demonstrate that predicted ancestral membrane proteins are preferentially lost compared with water-soluble proteins in closely related species of archaea and bacteria. These patterns are consistent across the whole tree of life, and in each of the three domains of archaea, bacteria, and eukaryotes. Our findings point to a fundamental evolutionary principle: membrane proteins evolve faster due to stronger adaptive selection in changing environments, whereas cytosolic proteins are under more stringent purifying selection in the homeostatic interior of the cell. This effect should be strongest in prokaryotes, weaker in unicellular eukaryotes (with intracellular membranes), and weakest in multicellular eukaryotes (with extracellular homeostasis). We demonstrate that this is indeed the case. Similarly, we show that extracellular water-soluble proteins exhibit an even stronger pattern of low homology than membrane proteins. These striking differences in conservation of membrane proteins versus water-soluble proteins have important implications for evolution and medicine.