We investigated InGaAs layers grown by molecular-beam epitaxy on GaAs (001) with transmission electron microscopy (TEM) and photoluminescence spectroscopy. InGaAs layers with In-concentrations of 16, 25 and 28 % and respective thicknesses of 20, 22 and 23 monolayers were deposited at 535 °C. Island formation is observed for the layer with the highest In-concentration. Inconcentration profiles were obtained from high-resolution TEM images by composition evaluation by lattice fringe analysis. The measured profiles can well be fitted applying the segregation model of Muraki et al. [Appl. Phys. Lett. 61 (1992) 557] and are in excellent quantitative agreement with the photoluminescence peak positions. From our data we conclude that island formation occurs when the amount of Indium in the In-floating layer reaches 1.1±0.2 monolayers indium.