Cholesterol-rich lipid rafts are found to facilitate membrane fusion, central to processes like viral entry, fertilization, and neurotransmitter release. While the fusion process involves local, transient membrane dehydration, the impact of reduced hydration on cholesterol's structural organization in biological membranes remains unclear. Here, we employ confocal fluorescence microscopy and atomistic molecular dynamics simulations to investigate cholesterol behavior in phase-separated lipid bilayers under controlled hydration. We unveiled that dehydration prompts cholesterol release from raft-like domains into the surrounding fluid phase. Unsaturated phospholipids undergo more significant dehydration-induced structural changes and lose more hydrogen bonds with water than sphingomyelin. The results suggest that cholesterol redistribution is driven by the equalization of biophysical properties between phases and the need to satisfy lipid hydrogen bonds. This underscores the role of cholesterol-phospholipid-water interplay in governing cholesterol affinity for a specific lipid type, providing a new perspective on the regulatory role of cell membrane heterogeneity during membrane fusion.