Lipids are integral components of all biological membranes. Understanding the physical and chemical properties of these lipids is critical to our understanding of membrane functions. We developed a new atomic force microscope (AFM) approach to visualize in real time the temperature-induced lipid phase transition and domain separation processes in 1,2-dimyristoyl-sn-glycero-3-phosphocholine (DMPC) membranes and estimate the thermodynamics of the phase transition process. The gel and liquid crystalline phases of DMPC coexisted over a broad temperature range (approximately 10 degrees C). Equal partitioning into two phases occurred at a transition temperature (Tm) of 28.5 degrees C. We developed a mathematical model to analyse AFM-derived DMPC membrane height changes as multi-peak Gaussian distributions. This approach allowed us to estimate the DMPC domain size, N, as 18-75 molecules per leaflet corresponding to a -4.2 nm diameter circular nanodomain. Lipid nanodomains may organize into microdomains or rafts which, in concert with proteins and other lipid components, play an important dynamic role in many biomedically important processes.