The interaction of the galactocerebroside, N-palmitoylgalactosylsphingosine (NPGS), with cholesterol has been studied by differential scanning calorimetry (DSC) and x-ray diffraction. Thermal and structural studies demonstrate complex behavior characterized by two endothermic transitions: transition I (TI approximately equal to 50-60 degrees C) corresponding to an NPGS-cholesterol bilayer gel----bilayer liquid crystal transition II (TII where TI less than TII less than TNPGS) corresponding to an NPGS bilayer crystal (stable E form)----bilayer liquid crystal transition. For mixtures containing from 6 to 80 mol % cholesterol, x-ray diffraction studies at 22 degrees C (T less than TI) indicate two separate lamellar phases; an NPGS crystal bilayer phase and a cholesterol monohydrate phase. For cholesterol concentrations less than 50 mol % at TI less than T less than TII, NPGS-cholesterol liquid crystal bilayer and excess NPGS crystal bilayer phases are observed. For greater than 50 mol % cholesterol concentrations at these temperatures, an excess cholesterol monohydrate phase coexists with the NPGS-cholesterol liquid crystal bilayers. At T greater than TII, complete NPGS-cholesterol miscibility is only observed for less than 50 mol % cholesterol concentrations, whereas at greater than 50 mol % cholesterol an excess cholesterol phase is present. The solid phase immiscibility of cerebroside and cholesterol at low temperatures is suggested to result from preferential NPGS-NPGS associations via hydrogen bonding. The unique thermal and structural behavior of NPGS-cholesterol dispersions is contrasted with the behavior of cholesterol-phosphatidycholine and cholesterol-sphingomyelin bilayers. Thermal and structural studies of NPGS in dipalmitoylphosphatidylcholine (DPPC)/cholesterol (1:1, molar ratio) bilayers have been performed. For dispersions containing less than 20 mol % NPGS at 22 degrees C there are no observable calorimetric transitions and x-ray diffraction studies indicate complete lipid miscibility. At greater than 20 mol % NPGS, a high temperature transition is observed that is shown by x-ray diffraction studies to be due to an excess NPGS crystal bilayer----liquid crystal bilayer transition. Complete miscibility of NPGS in DPPC/cholesterol bilayers is observed at T greater than TNPGS. The properties of NPGS/DPPC/cholesterol bilayers are discussed in terms of the lipid composition of the myelin sheath.