The reason for the enormous lipid variety present in eukaryotic membranes remains largely an enigma. We suggest that its role is to provide an on-off switch for a signaling event at the membrane level. This is achieved through lipid-lipid interactions that convert membrane protein binding and association events into very cooperative processes while maintaining reversibility. We have previously shown [Hinderliter, A., at al. (2001) Biochemistry 40, 4181-4191] that thermodynamic linkage between an intrinsic tendency for lipid demixing and a preferential interaction of a protein with a specific lipid within the mixture leads to dramatic changes in lipid and protein domain formation. Here, we tested the hypothesis that small alterations in lipid chemical structure alter the magnitude of the net interaction free energy (ωAB) between unlike lipids in a predictable manner, and that even very small changes in ωAB lead to dramatic changes in bilayer organization when coupled with protein binding. We systematically varied the chemical structure of phosphatidylcholine (PC), in mixtures with a fixed phosphatidylserine (PS), by changing the PC acyl chain length and the degree of unsaturation, and examined domain formation upon addition of a peripheral protein, the synaptotagmin I C2A motif. Experimental excimer/monomer ratios (E/M) of pyrene-substituted lipids mimicking the PS were interpreted using Monte Carlo computer simulations. E/M is larger if the PC melting temperature is lower, suggesting that domain formation is a thermodynamic consequence of weak interactions between PC and PS. Consistent with our hypothesis, only very small changes in ωAB were required for prediction of large changes in lipid and protein domain formation.