A protein that constitutes a good marker for a type of cholesterol-rich domain in biological membranes is caveolin. A segment of this protein has a sequence that corresponds to a cholesterol recognition/interaction amino acid consensus (CRAC) motif; this motif has been suggested to cause the incorporation of proteins into cholesterol-rich domains. We have studied the interaction of two peptides containing the CRAC motif of caveolin-1 by differential scanning calorimetry, fluorescence, circular dichroism and magic angle spinning NMR. These peptides promote the segregation of cholesterol into domains from mixtures of the sterol with phosphatidylcholine, as shown by depletion of cholesterol from a portion of the membrane and enrichment of cholesterol in another domain. Cholesterol passes its solubility limit in the cholesterol-rich domain, resulting in the formation of cholesterol crystallites, suggesting that not all of the cholesterol recruited to this domain is bound to the peptide. NMR studies show that the peptides insert somewhat more deeply into membranes when cholesterol is present, but their strongest interaction takes place with the interfacial region of the membrane. We conclude that the peptides we studied containing CRAC sequences are more effective in promoting the formation of cholesterol-rich domains than are shorter peptides of this region of caveolin, which although they contain several aromatic amino acids, they have no CRAC motif. The presence or absence of a CRAC motif, however, is not a sufficient criterion to determine the extent to which a protein will promote the segregation of cholesterol in membranes.