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A large number of hormones, neurotransmitters, and odorants exert their effects on cells by triggering changes in intracellular levels of cyclic adenosine monophosphate (cAMP). Although the effector proteins that bind cAMP have been identified, it is not known how this single messenger can differentially regulate the activities of hundreds of cellular proteins. It has been clear, for some time, that compartmentation of cAMP signals must be taking place, but the physical basis for compartmentation and the nature of local cAMP signals are mostly unknown. We present here a high-resolution method for measuring cAMP signals near the membrane in single cells. Cyclic nucleotide-gated (CNG) ion channels from olfactory receptor neurons have been genetically modified to improve their cAMP-sensing properties. We outline how these channels can be used in electrophysiological experiments to measure accurately changes in cAMP concentration near the membrane, where most adenylyl cyclases reside. We also describe how the method has been employed to dissect the roles of diffusion barriers and differential phosphodiesterase activity in creating distinct cAMP signals. This approach has much greater spatial and temporal resolution than other methods for measuring cAMP and should help to unravel the complexities of signaling by this ubiquitous messenger.