In this work we have tried to evaluate the usefulness of 1-naphthol as an excited state proton transfer fluorescent probe for studying the ethanol-induced interdigitation in lipid bilayer membranes. When ethanol concentration in lipisome is progressively increased, the neutral form fluorescence of 1-naphthol is found to decrease with corresponding increase in the anionic form intensity. This behavior is in contrast to that observed in the absence of lipid where a reverse effect is noticed. Modification of lipid bilayer is known to occur in the presence of ethanol, which increases the packing density of the membrane. Due to this induction of interdigitated gel phase, redistribution of naphthol between the inner core and interfacial region of the lipid bilayer takes places, accounting for the reduction in neutral form fluorescence intensity. The partition coefficient values and the quenching studies also support the redistribution of 1-naphthol in the liposome membrane. The neutral form fluorescence of 1-naphthol successfully monitors the shift in phase transition temperature due to ethanol-induced interdigitation. It also explains the prevention of interdigitation in lipid bilayer at high cholesterol concentration.