Measurements of contact-dependent fluorescence quenching and of fluorescence resonance energy transfer (FRET) within bilayers provide information concerning the spatial relationships between molecules on distance scales of a few nm or up a few tens of nm, respectively, and are therefore well suited to detect the presence and composition of membrane microdomains. As described in this review, techniques based on fluorescence quenching and FRET have been used to demonstrate the formation of nanoscale liquid-ordered domains in cholesterol-containing model membranes under physiological conditions, and to investigate the structural features of lipids and proteins that influence their partitioning between liquid-ordered and liquid-disordered domains. FRET-based methods have also been used to test for the presence of 'raft' microdomains in the plasma membranes of mammalian cells. We discuss the sometimes divergent findings of these studies, possible modifications to the 'raft hypothesis' suggested by studies using FRET and other techniques, and the further potential of FRET-based methods to test and to refine current models of the nature and organization of membrane microdomains.