The organization and dynamics of the hydrophobic fluorescent probe Nile Red incorporated in DOPC vesicles containing varying amounts of cholesterol has been monitored utilizing fluorescence-based approaches which include the red edge excitation shift (REES) approach and the parallax method for depth determination. Our results show that the fluorescence emission maximum, intensity, polarization, and lifetime of Nile Red vary with the cholesterol content of the membrane. Interestingly, Nile Red exhibits significant REES independent of the presence of cholesterol. This indicates that Nile Red is localized in a motionally restricted environment in the membrane. This is supported by analysis of membrane penetration depth of Nile Red using the parallax method which points out to a membrane interfacial localization of Nile Red. These results could be useful in analyzing membrane organization and heterogeneity in natural membranes using Nile Red.