Diacylglycerol (DAG)-induced activation of phosphatidylinositol-phospholipase C (PI-PLC) was studied with vesicles containing PI, either pure or in mixtures with dimyristoyl phosphatidylcholine, distearoyl phosphatidylcholine, sphingomyelin, or galactosylceramide, used as substrates. At 22°C, DAG at 33 mol % increased PI-PLC activity in all of the mixtures, but not in pure PI bilayers. DAG also caused an overall decrease in diphenylhexatriene fluorescence polarization (decreased molecular order) in all samples, and increased overall enzyme binding. Confocal fluorescence microscopy of giant unilamellar vesicles of all of the compositions under study, with or without DAG, and quantitative evaluation of the phase behavior using Laurdan generalized polarization, and of enzyme binding to the various domains, indicated that DAG activates PI-PLC whenever it can generate fluid domains to which the enzyme can bind with high affinity. In the specific case of PI/dimyristoyl phosphatidylcholine bilayers at 22°C, DAG induced/increased enzyme binding and activation, but no microscopic domain separation was observed. The presence of DAG-generated nanodomains, or of DAG-induced lipid packing defects, is proposed instead for this system. In PI/galactosylceramide mixtures, DAG may exert its activation role through the generation of small vesicles, which PI-PLC is known to degrade at higher rates. In general, our results indicate that global measurements obtained using fluorescent probes in vesicle suspensions in a cuvette are not sufficient to elucidate DAG effects that take place at the domain level. The above data reinforce the idea that DAG functions as an important physical agent in regulating membrane and cell properties.