In this study, fluorescence correlation spectroscopy (FCS) is used to investigate the photo-induced transient states of Merocyanine 540 (MC540), a fluorescent agent for photodynamic therapy. Two relaxation processes are observed in the FCS measurements, which can be attributed to trans–cis isomerization and triplet state formation. Under the photostationary conditions present in the detection volume of the FCS measurements, the steady state populations of the photo-isomer and the triplet state, as well as their relaxation rates, can be determined. The population of the triplet states was noticeably reduced by light-induced deactivation at 515 nm excitation, and by simultaneous excitation at 647 nm the triplet state build-up could be almost eliminated with a concomitant increase in fluorescence intensity. By applying a simplified kinetic model for the measured fluorescence fluctuations it is possible to determine the rates for intersystem crossing, triplet state decay, as well as photo-induced isomerization and back-isomerization. In relation to other present techniques, FCS offers a relatively simple way to monitor photo-induced trans–cis isomerization, and cis–trans back-isomerization. For MC540, it is desirable to increase the triplet state formation at the expense of trans–cis isomerization in order to optimize the photodynamic action. FCS is well suited to monitor these processes on a microscopic scale, and thus to follow the local potency of MC540 as a photodynamic agent, at its site of action in target cells.