Cholesterol, as one of the major components of liposomes, plays a critical role in modulating membrane bilayer permeability, fluidity, and structural stability. Controlling these quality attributes is essential to maintaining the efficacy and fitness of the liposomes in various applications. However, during the manufacture and storage of liposomes, cholesterol has a propensity to undergo oxidative degradation. Hence, an analytical tool that is capable of determining not only the identity and quantity of cholesterol but also its associated degradants is a prerequisite to effective process control and product quality and safety assessments. In this view, a new liquid chromatography electrospray ionization-tandem mass spectrometry (LC-ESI-MS/MS) method with parallel reaction monitoring (PRM) was developed and qualified to accurately quantify cholesterol and monitor the formation of 25-hydroxycholesterol degradant in liposomal drug formulations without the use of an isotopic internal standard (IS). The method was qualified according to the FDA Quality Guidance for Industry: Q2(R1). Study results showed that the method presents good specificity for cholesterol and 25-hydroxycholesterol detection in the liposomal matrix, good sensitivity characterized by LOD/LOQ in the nanomolar range, and accuracy within the range of 80 to 120%. The described method enables accurate evaluation of in-process and product release samples of Army Liposome Formulation with QS21 (ALFQ).