We revisit the important issues of polymorphism, structure, and nucleation of cholesterol·H2O using first-principles calculations based on dispersion-augmented density functional theory. For the lesser known monoclinic polymorph, we obtain a fully extended H-bonded network in a structure akin to that of hexagonal ice. We show that the energy of the monoclinic and triclinic polymorphs is similar, strongly suggesting that kinetic and environmental effects play a significant role in determining polymorph nucleation. Furthermore, we find evidence in support of various O–H···O bonding motifs in both polymorphs that may result in hydroxyl disorder. We have been able to explain, via computation, why a single cholesterol bilayer in hydrated membranes always crystallizes in the monoclinic polymorph. We rationalize what we believe is a single-crystal to single-crystal transformation of the monoclinic form on increased interlayer growth beyond that of a single cholesterol bilayer, interleaved by a water bilayer. We show that the ice-like structure is also relevant to the related cholestanol·2H2O and stigmasterol·H2O crystals. The structure of stigmasterol hydrate both as a trilayer film at the air–water interface and as a macroscopic crystal further assists us in understanding the polymorphic and thermal behavior of cholesterol·H2O. Finally, we posit a possible role for one of the sterol esters in the crystallization of cholesterol·H2O in pathological environments, based on a composite of a crystalline bilayer of cholesteryl palmitate bound epitaxially as a nucleating agent to the monoclinic cholesterol·H2O form.