Formation of domains by the membrane binding motifs of caveolin and src were studied in large unilamellar vesicles using fluorescence digital imaging microscopy. Caveolin, a major structural protein of caveolae, contains a scaffolding region (residues 82-101) that contributes to the binding of the protein to the plasma membrane. A caveolin peptide (82-101) corresponding to this scaffolding region induced the formation of membrane domains enriched in the acidic lipids phosphatidylserine and phosphatidylinositol-4,5-bisphosphate. Cholesterol, another predominant component of caveolae, was also enriched in these domains. Caveolae also contain many different signaling molecules including src family tyrosine kinases. Src proteins bind to the plasma membrane via a N-terminal myristate chain and a cluster of basic residues that can interact electrostatically with negatively charged lipids. A peptide corresponding to the src membrane binding motifs (residues myr-2-19) sequestered acidic lipids into lateral membrane domains. Both the src and the caveolin peptides colocalized together with acidic lipids in the domains. Control experiments show the domains are not the result of vesicle aggregation. Two-photon fluorescence correlation spectroscopy experiments suggest diffusion in the domains was slower, but the domains were dynamic. Protein kinase C phosphorylated src in its N-terminal membrane binding region; however, the caveolin scaffolding peptide inhibited this activity. Consequently, protein-induced membrane domains may affect cell signaling by organizing signal transduction components within the membrane and changing reaction rates.