Lateral domain or raft formation in biological membranes is often discussed in terms of cholesterol-lipid interactions. Preferential interactions of cholesterol with lipids, varying in headgroup and acyl chain unsaturation, were studied by measuring the partition coefficient for cholesterol in unilamellar vesicles. A novel vesicle-cyclodextrin system was used, which precludes the possibility of cross-contamination between donor-acceptor vesicles or the need to modify one of the vesicle populations. Variation in phospholipid headgroup resulted in cholesterol partitioning in the order of sphingomyelin (SM) > phosphatidylserine > phosphatidylcholine (PC) > phosphatidylenthanolamine (PE), spanning a range of partition DeltaG of -1181 cal/mol to +683 cal/mol for SM and PE, respectively. Among the acyl chains examined, the order of cholesterol partitioning was 18:0(stearic acid),18:1n-9(oleic acid) PC > di18:1n-9PC > di18:1n-12(petroselenic acid) PC > di18:2n-6(linoleic acid) PC > 16:0(palmitic acid),22:6n-3(DHA) PC > di18:3n-3(alpha-linolenic acid) PC > di22:6n-3PC with a range in partition DeltaG of 913 cal/mol. Our results suggest that the large differences observed in cholesterol-lipid interactions contribute to the forces responsible for lateral domain formation in plasma membranes. These differences may also be responsible for the heterogeneous cholesterol distribution in cellular membranes, where cholesterol is highly enriched in plasma membranes and relatively depleted in intracellular membranes.