  The evolution of a protostellar binary system is investigated while it is
embedded in its parent molecular cloud core and acted upon by gas drag due to
dynamical friction. Approximate analytical results are obtained for the energy
and angular momentum evolution of the orbit in the limiting cases, where the
velocity is much smaller than, and much larger than the velocity dispersion of
the gas. The general case is solved numerically. Dissipation causes a decay of
the orbit to smaller separations and orbital eccentricity increases with time.
As a binary probably spends about a few $10^6$ years embedded in the cloud,
significant evolution of the orbit is expected before the dispersal of the
cloud. Binary populations have been statistically generated and evolved for
comparison with observations of MS and PMS binaries. Dynamical friction changes
the initial frequency distribution with period of the binaries, and a maximum
is obtained in the distribution as seen observationally. Decay of the orbit due
to gas drag causes an evolution of long-period orbits to shorter periods and
thus enables the formation of close binaries.
