Large unilamellar vesicles composed of lipids with different hydration properties were prepared by the extrusion technique. Vesicles were composed of dioleoylphosphatidylcholine in combination with either 0.5 mol % monooleoylphosphatidylcholine or different molar ratios of dilauroylphosphatidylethanolamine. Fusion was revealed via a fluorescence assay for contents mixing and leakage, a fluorescent lipid probe assay for membrane mixing, and quasi-elastic light scattering to detect vesicle size growth. As the percentage of poorly hydrating phosphatidylethanolamine increased, the concentration of poly(ethylene glycol) (PEG) required to induce fusion decreased. From differential scanning calorimetry studies of membrane-phase behavior and X-ray diffraction monitoring of phase structure in PEG, it was concluded that PEG did not induce a hexagonal-phase transition or lamellar-phase separation. Electron density profiles derived from X-ray diffraction studies of multi- and unilamellar vesicles indicated that the water layer between vesicles had a thickness of approximately 5 A at PEG concentrations at which vesicles were first induced to fuse. At this distance of separation, the choline headgroups from apposing bilayers are in near-molecular contact. Since pure phosphatidylcholine vesicles did not fuse at this interbilayer spacing, a reduction in the interbilayer water layer to a critical width of approximately 2 water molecules may contribute to but is not sufficient to produce PEG-mediated fusion of phospholipid membranes. Comparison of these results with other results from this laboratory also indicates that, while close contact between bilayers promotes fusion, near-molecular contact is apparently not absolutely necessary to bring about fusion. A tentative model is presented to account for these results.