The effects of ceramide incorporation in supported bilayers prepared from ternary lipid mixtures which have small nanoscale domains have been examined using atomic force and fluorescence microscopy. Both direct ceramide incorporation in vesicles used to prepare the supported bilayers and enzymatic hydrolysis of SM by sphingomyelinase were compared for membranes prepared from 5:5:1 DOPC/sphingomyelin/cholesterol mixtures. Both methods of ceramide incorporation resulted in enlargement of the initial small ordered domains. However, enzymatic ceramide generation led to a much more pronounced restructuring of the bilayer to give large clusters of domains with adjacent areas of a lower phase. The individual domains were heterogeneous with two distinct heights, the highest of which is assigned to a ceramide-rich phase which is hypothesized to occur via ceramide flip-flop to the lower leaflet with formation of a raised domain due to negative membrane curvature. A combination of AFM and fluorescence showed that the bilayer restructuring starts rapidly after enzyme addition, with formation of large clusters of domains at sites of high enzyme activity. The clustering of domains is accompanied by redistribution of fluid phase to the periphery of the domain clusters and there is a continued slow evolution of the bilayer over a period of an hour or more after the enzyme is removed. The relevance of the observed clustering of small nanoscale domains to the postulated coalescence of raft domains to form large signaling platforms is discussed.