The endosomal sorting complex required for transport (ESCRT) system traffics ubiquitinated cargo to lysosomes via an unusual membrane budding reaction that is directed away from the cytosol. Here, we show that human ESCRT-II self-assembles into clusters of 10-100 molecules on supported lipid bilayers. The ESCRT-II clusters are functional in that they bind to ubiquitin and the ESCRT-III subunit VPS20 at nanomolar concentrations on membranes with the same stoichiometries observed in solution and in crystals. The clusters only form when cholesterol is included in the lipid mixture at >10 mol %. The clusters induce the formation of ordered membrane domains that exclude the dye 1,1'-dioctadecyl-3,3,3',3'-tetramethylindodicarbo-cyanine perchlorate. These results show that ESCRT complexes are capable of inducing lateral lipid phase separation under conditions where the lipids themselves do not spontaneously phase-separate. This property could facilitate ESCRT-mediated membrane budding.