A novel photoreactive analog of cholesterol, 3alpha-(4-azido-3-[125I]iodosalicylic)-cholest-5-ene ([125I]azido-cholesterol), was used to label both native acetylcholine receptor (AChR)-rich membranes from Torpedo californica and affinity-purified Torpedo AChRs reconstituted into lipid vesicles. In both cases all four AChR subunits incorporated [125I]azido-cholesterol on an equal molar basis and neither the pattern nor the extent of labeling was affected by the presence of the agonist carbamylcholine. Labeled regions in each of the AChR subunits were initially mapped by Staphylococcus aureus V8 protease digestion to large fragments which contain the AChR transmembrane segments. Sites of [125I]azido-cholesterol incorporation were further mapped by exhaustive tryptic digestion of the V8 protease subunit fragments alphaV8-20 (alphaSer-173-Glu-338), alphaV8-10 (alphaAsn-339-Gly-439), and gammaV8-14 (gammaLeu-373-Pro-489). The digests were separated by reverse-phase high-performance liquid chromatography and labeled peptides identified by amino-terminal sequence analysis. [125I]Azido-cholesterol labeling was localized to peptides that contain almost exclusively the alpha-M4, alpha-M1 and gamma-M4 membrane spanning segments. These results establish that the binding domain for cholesterol is at the lipid-protein interface of the AChR.