A system and method for detecting phase separation in storage tanks is provided. At least one float has a density calibrated to detect a density differential among surrounding fluids. The float is buoyant on a relatively more dense lower layer of fluid such as phase separated fuel or pure water, while remaining submerged in a relatively less dense upper layer of fluid such as a gasoline/ethanol blend. A detection device sends a signal when the float rises or falls above or below a preset acceptable level.