We studied the shape deformation induced by the phase separation of two-component vesicles using a dissipative particle dynamics simulation. Two types of amphiphiles, which have the same architecture but segregate from each other, are modeled by connecting particles representing the hydrophilic head and hydrophobic tail groups. After vesicle formation using a single component system, some of the amphiphiles are replaced by a second component, and then phase separation on the vesicle is simulated. Under appropriate conditions, typical shape deformations of a vesicle, such as crenated and invaginated shapes, are observed. We demonstrate that the budding and the fission are facilitated by lateral phase separation upon vesicle coupling to an asymmetric transversal distribution of amphiphiles in the bilayer. Moreover, simulations show a possible new pathway for the fission process triggered by cleavage along the domain boundary. Mesoscopic simulation based on a simple coarse-graining model reveals the dynamics of amphiphiles in vesicles that is essentially unpredictable using a conventional continuum model or full atomistic simulation. (C) 2003 American Institute of Physics.