Lipids that are covalently labeled with the 7-nitrobenz-2-oxa-1,3-diazol-4-yl (NBD) group are widely used as fluorescent analogues of native lipids in model and biological membranes to study a variety of processes. We have recently shown that one such NBD labeled lipid, NBD-PE, in which the NBD label is covalently attached to the headgroup of a phosphatidylethanolamine molecule, exhibits the red edge excitation shift (REES) effect when incorporated into vesicles of dioleoyl-sn-glycero-3-phosphocholine (DOPC) [Chattopadhyay, A.; Mukherjee, S. Biochemistry 1993, 32, 3804]. One of the necessary conditions for a fluorophore to be able to exhibit REES is that the fluorophore must be polar and, more importantly, there should be a change in its dipole moment upon excitation. In this paper, we have determined the actual change in dipole moment of the NBD group upon excitation using the solvatochromic shift approach. Our results show that the dipole moment of the NBD group changes by 3.9 D upon excitation. We have complemented this experimental observation by semiempirical quantum chemical calculations of dipole moment changes of various NBD derivatives. These calculated dipole moment changes (3.5-3.6 D) agree very well with our experimental value. These calculations also point out that the process of charge separation is mainly limited to the NBD ring system and is independent of the length of the alkyl chain. These results are relevant to ongoing and future studies that utilize photophysical properties of the NBD group, especially in microheterogeneous media such as membranes and micelles.