Phytosterols (PS) are functional ingredients capable of providing health benefits. This study investigated the potential of incorporating different levels of PS ester (0.8, 1.2, 1.6 and 2.0 g/100 g) into skim milk (0.1 g/100 mL milk fat) to replace the milk fat. PS-enriched milk were analysed for its physical characteristics (colour, viscosity, tribology, particle size and microstructure) and compared to commercial milk (0.1, 1.3, 2 g/100 mL fat, and 1.3 g/100 mL fat with 0.3 g/100 mL PS). Furthermore, the flavour profiles and sensory acceptability of the PS-enriched milk were evaluated. All samples exhibited a characteristic shear-thinning flow behaviour, with 2 g/100 g PS ester milk displaying the highest viscosity (4.46 ± 1.93 mPa s) at 50/s shear rate and 35 °C. Confocal images and particle size distribution suggest fat coalescence resulting in larger fat globules (0.53 ± 0.14 μm) in 2 g/100 g PS ester milk. In general, the addition of PS ester increased the fatty acid and aldehyde compounds of PS-enriched milk, providing comparable lubrication properties and whiteness to commercial milk with the same fat levels. Sensory evaluation revealed that the PS-enriched milk did not possess any off-flavour and milk with 1.6 g/100 g PS ester were the most preferred.