The generation of ceramide in cellular membranes is believed to cause coalescence of small lipid raft domains to give large signaling platforms, thus providing a site for the oligomerization of cell surface receptors. We have used atomic force microscopy to study the effects of ceramide generation by in situ enzymatic hydrolysis of sphingomyelin in phase-separated lipid bilayers that have sphingomyelin/cholesterol-rich domains surrounded by a fluid phase. In situ generation of ceramide produces heterogeneous domains with many raised subdomains that are also formed in bilayers containing premixed ceramide. However, in situ ceramide generation also results in the restructuring of the bilayer to give (1) areas of fluid phase that are devoid of domains, (2) areas that have a distribution of domains similar to the original bilayer, and (3) areas containing clusters of domains. The observation of the ceramide-promoted heterogeneity and clustering of raft domains in a physiologically relevant model provides strong support for the ceramide-induced formation of signaling platforms in cell membranes.