Membranes with simple lipid composition exhibit complex phase behavior. Ordered and disordered liquid phases can coexist in cholesterol-containing membranes with lipid compositions resembling biological membranes and at physiological temperatures. Research during the last years suggests that these lipid domains play a role in the organization of biological membranes. Understanding the principles that govern the formation and stability of lipid domains is of great importance to build a model that properly describes membrane structure and function. In this review, we describe the current knowledge of the chemical and physical basis of lipid domains and its application to biological membranes.