When a simple alcohol such as methanol or ethanol is mixed with water, the entropy of the system increases far less than expected for an ideal solution of randomly mixed molecules. This well-known effect has been attributed to hydrophobic headgroups creating ice-like or clathrate-like structures in the surrounding water, although experimental support for this hypothesis is scarce. In fact, an increasing amount of experimental and theoretical work suggests that the hydrophobic headgroups of alcohol molecules in aqueous solution cluster together. However, a consistent description of the details of this self-association is lacking. Here we use neutron diffraction with isotope substitution to probe the molecular-scale structure of a concentrated alcohol water mixture (7:3 molar ratio). Our data indicate that most of the water molecules exist as small hydrogen-bonded strings and clusters in a 'fluid' of close-packed methyl groups, with water clusters bridging neighbouring methanol hydroxyl groups through hydrogen bonding. This behaviour suggests that the anomalous thermodynamics of water alcohol systems arises from incomplete mixing at the molecular level and from retention of remnants of the three-dimensional hydrogen-bonded network structure of bulk water.