Monte Carlo simulations are used to study the rippled P-beta' phase in biomembranes conceived as a lamellar stack of lipid bilayers, each represented by a two-dimensional hexagonal lattice, in aqueous environment. The appearance of this intermediate phase between the ordered L-beta' phase and the fluid L, phase in the temperature driven gel-fluid transition is attributed to the coexistence of gel-fluid rich domains in the pre-transition phase. The interfacial energy, that plays a crucial role in domain formation, is governed by a delicate balance between the hydrophobic interaction within the hydrocarbon chains and the headgroup repulsion at the interface. The latter gets disturbed by the increase in the cross-sectional area per molecule at increased temperature and hydration. Periodic surface ripples appear to compensate the packing frustration between the headgroups and the hydrocarbon chains. The G plots, produced by the simulation work, confirm the presence of the pre-transition phase. A typical configuration of the P-beta' phase also shows the corrugated surface profile. The essential presence of certain minimum hydration for the appearance of the P-beta' phase has also been observed. (C) 2002 Elsevier Science B.V. All rights reserved.