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SB 1.2.31

tayā vilasiteṣv eṣu
 guṇeṣu guṇavān iva
antaḥ-praviṣṭa ābhāti
 vijñānena vijṛmbhitaḥ
Synonyms: 
tayā — by them; vilasiteṣu — although in the function; eṣu — these; guṇeṣu — the modes of material nature; guṇavān — affected by the modes; iva — as if; antaḥ — within; praviṣṭaḥ — entered into; ābhāti — appears to be; vijñānena — by transcendental consciousness; vijṛmbhitaḥ — fully enlightened.
Translation: 
After creating the material substance, the Lord [Vāsudeva] expands Himself and enters into it. And although He is within the material modes of nature and appears to be one of the created beings, He is always fully enlightened in His transcendental position.
Purport: 

The living entities are separated parts and parcels of the Lord, and the conditioned living entities, who are unfit for the spiritual kingdom, are strewn within the material world to enjoy matter to the fullest extent. As Paramātmā and eternal friend of the living entities, the Lord, by one of His plenary portions, accompanies the living entities to guide them in their material enjoyment and to become witness to all activities. While the living entities enjoy the material conditions, the Lord maintains His transcendental position without being affected by the material atmosphere. In the Vedic literatures (śruti) it is said that there are two birds in one tree.* One of them is eating the fruit of the tree, while the other is witnessing the actions. The witness is the Lord, and the fruit-eater is the living entity. The fruit-eater (living entity) has forgotten his real identity and is overwhelmed in the fruitive activities of the material conditions, but the Lord (Paramātmā) is always full in transcendental knowledge. That is the difference between the Supersoul and the conditioned soul. The conditioned soul, the living entity, is controlled by the laws of nature, while the Paramātmā, or the Supersoul, is the controller of the material energy.