Purified nicotinic acetylcholine receptor (AChR) protein was reconstituted into synthetic lipid membranes having known effects on receptor function in the presence and absence of cholesterol (Chol). The phase behavior of a lipid system (DPPC/DOPC) possessing a known lipid phase profile and favoring nonfunctional, desensitized AChR was compared with that of a lipid system (POPA/POPC) containing the anionic phospholipid phosphatidic acid (PA), which stabilizes the functional resting form of the AChR. Fluorescence quenching of diphenylhexatriene (DPH) extrinsic fluorescence and AChR intrinsic fluorescence by a nitroxide spin-labeled phospholipid showed that the AChR diminishes the degree of DPH quenching and promotes DPPC lateral segregation into an ordered lipid domain, an effect that was potentiated by Chol. Fluorescence anisotropy of the probe DPH increased in the presence of AChR or Chol and also made apparent shifts to higher values in the transition temperature of the lipid system in the presence of Chol and/or AChR. The values were highest when both Chol and AChR were present, further reinforcing the view that their effect on lipid segregation is additive. These results can be accounted for by the increase in the size of quencher-free, ordered lipid domains induced by AChR and/or Chol. Pyrene phosphatidylcholine (PyPC) excimer (E) formation was strongly reduced owing to the restricted diffusion of the probe induced by the AChR protein. The analysis of Forster energy transfer (FRET) from the protein to DPH further indicates that AChR partitions preferentially into these ordered lipid microdomains, enriched in saturated lipid (DPPC or POPA), which segregate from liquid phase-enriched DOPC or POPC domains. Taken together, the results suggest that the AChR organizes its immediate microenvironment in the form of microdomains with higher lateral packing density and rigidity. The relative size of such microdomains depends not only on the phospholipid polar headgroup and fatty acyl chain saturation but also on AChR protein-lipid interactions. Additional evidence suggests a possible competition between Chol and POPA for the same binding sites on the AChR protein.