Ordered membrane domains, (conventionally called lipid rafts) are tightly packed sphingolipid and cholesterol rich domains, proposed to co-exist with disordered domains, in the plasma membrane. In spite of many cellular functions allotted to rafts, their direct detection in cells has been difficult. Rafts may be too small to detect and this could easily be misinterpreted as their absence. For this reason, the contention that in the absence of detergent Triton X-100 (commonly used to isolate rafts), domains may not exist in the lipid mixture resembling the plasma membrane, was investigated. A novel FRET pair variation assay in which, FRET pairs with successively smaller interaction distances, were used to detect nanodomains and roughly estimate domain size. A lipid mixture in which rafts were claimed to be Triton induced was used. Domains were detected at physiological temperature even in the absence of Triton and their size gradually decreased with increase in temperature. In addition, Triton and transmembrane peptides increased domain size by coalescing smaller nanodomains and made detection easier. Next, domain formation was studied in living cells. The outer membrane of the spirochete Borrelia burgdorferi contains microdomains enriched in (unusual) cholesterol glycolipids and free cholesterol. To determine whether these recently discovered microdomains are ordered domains, the correlation between structure and domain forming abilities of sterols, characterized by our lab previously, was used in conjunction with a novel FRET assay. It was found that ordered domain favoring sterols were both necessary and sufficient for the formation of domains in living B.burgdorferi cells. Domains were also detected in untreated B.burgdorferi cells. This study provides evidence for the existence of lipid rafts in living cells. The sterol substitution strategy applied in this report may be extended to study domain formation in eukaryotic cells.