The effect of a transmembrane peptide on the domain structure of a two-component, two-phase lipid bilayer composed of dimyristoyl phosphatidylcholine (DMPC) and distearoyl phosphatidylcholine (DSPC) was examined by spin label electron spin resonance (ESR) spectroscopy. The peptide, pOmpA, is the hydrophobic, 25-residue signal sequence of the outer membrane protein A from Escherichia coli. Nitroxide derivatives of the phospholipid DSPC, 16-DSPCSL, and of the pOmpA signal peptide, pOmpA-IASL, were used as probes. The first-derivative lineshapes of the ESR spectra were analyzed using a normalized intensity ratio, R, that gives information on the average sizes of the disconnected fluid domains and their point of connectivity (Sankaram, M.B., D. Marsh, and T.E. Thompson. 1992. Biophys. J. 63:340-349). In the absence of the peptide, the number of fluid lipid domains does not vary with the fraction of lipid that is in the fluid phase, and phase conversion is accomplished solely by changes in the domain size. The phase boundaries of the lipid mixture remain largely unchanged by the presence of the peptide at mole fractions up to 0.02, but both the size and number of the fluid domains is changed, and the point at which they become connected is shifted to lower fractions of the fluid phase. In addition, the number of domains in the presence of the peptide no longer remains constant but increases from a domain density at low fractions of the fluid phase that is much lower than that in the absence of peptide to one that is comparable to the natural state in the absence of peptide at the point of domain connectivity. A simple model is presented for the process of domain fission, where the latter is determined by a balance between the effects of peptide concentration in the fluid domains, the line tension at the domain boundaries, and the distributional entropy of the domains.