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 (∼10°C). Equal partitioning into two phases occurred at a transition temperature (Tm) of 28.5°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.