How do cells sense and control their cholesterol levels? Whereas most of the cell cholesterol is located in the plasma membrane, the effectors of its abundance are regulated by a small pool of cholesterol in the endoplasmic reticulum (ER). The size of the ER compartment responds rapidly and dramatically to small changes in plasma membrane cholesterol around the normal level. Consequently, increasing plasma membrane cholesterol in vivo from just below to just above the basal level evoked an acute (<2 h) and profound (≈20-fold) decrease in ER 3-hydroxy-3-methylglutaryl-CoA reductase activity in vitro. We tested the hypothesis that the sharply inflected ER response to cholesterol is governed by the thermodynamic activity (fugacity) of plasma membrane cholesterol. The following two independent measures of plasma membrane cholesterol activity in human red cells and fibroblasts were used: susceptibility to cholesterol oxidase and cholesterol transfer to cyclodextrin. Both indicators revealed a threshold at the physiologic set point of plasma membrane cholesterol. Incrementing the phospholipid compartment in the plasma membrane with lysophosphatidylcholine, previously shown to decrease cholesterol oxidase susceptibility, reduced the transfer of plasma membrane cholesterol to cyclodextrin and to the ER. Conversely, the membrane intercalator, n-octanol, increased cholesterol oxidation, transfer, and ER pool size, perhaps by displacing cholesterol from plasma membrane phospholipids. We conclude that the activity of the fraction of cholesterol in excess of other plasma membrane lipids sets the cholesterol level in the ER. Cholesterol-sensitive elements therein respond by nulling the active plasma membrane pool, thereby keeping the cholesterol matched to the other plasma membrane lipids.