Diagnosis is based on clinical signs, history of tick exposure, antibody testing and response to therapy. The most common screening test for Lyme disease is the in-clinic SNAP test (same as used for ehrlichia). Again, the problem with the test is that is cannot determine actual disease causing infection from simple exposure. And as many as 90% of dogs in endemic areas may be exposed with only a few ever developing clinical signs. However, resolution of arthritis signs occurs within several days after beginning therapy and can be used to confirm the diagnosis. Treatment is a several week course of Doxycycline or Amoxicillin.
The goal of therapy is to eliminate the clinical signs. Total eradication of the organism from the body is not realistic. For this reason, dogs that test positive for Lyme disease should be periodically screened for protein loss in the urine and treated appropriately.
Prevention of Lyme disease is aimed at tick control. It takes a minimum of 18 hours after a tick bite for transmission of Lyme disease to occur so many of the tick preventative products will help reduce Lyme disease infection as well as daily checking of your pet and manual removal.
There is also a vaccine available for prevention of Lyme disease which appears effective. There is controversy surrounding whether or not vaccinating dogs can contribute antigens which can worsen a pending or ongoing renal issue. Some others also feel that since this is a typically a minor and easily treated health condition is does not warrant vaccination. In general, vaccination is likely safe and often recommended in endemic areas, but tick control and removal should not be overlooked.
Lyme disease is a largely regional problem with most cases in New England and the upper midwest. This map is from the CDC's data of human reported cases, but the distribution for dogs will be similar. Of the two dogs I have seen test positive for Lyme disease here in MO, both previously lived in New England.
Lyme disease is rare in cats.