Cholesterol is one of the major lipid components of the plasma membrane in mammalian cells, and its excess is associated with multiple pathological conditions including cardiovascular and neurodegenerative disease. In recent years, cholesterol has been emerging as a major regulator of ion channel function. Here we focus on G protein‐gated inwardly rectifying K+ (GIRK or Kir3) channels that play a key role in the regulation of membrane excitability in neuronal and cardiac cells.The most common effect of cholesterol on ion channels is a decrease in channel activity. In contrast, we have recently shown that unexpectedly cholesterol enrichment up‐regulates Kir3 activity in atrial myocytes. Notably, we show here that also in freshly isolated CA1 pyramidal neurons from hippocampus, in‐vitro cholesterol enrichment results in a strong increase in physiological Kir3 currents.To obtain mechanistic insights into the up‐regulation of cardiac and neuronal Kir3 channels by cholesterol, we employed planar lipid bilayers, mutagenesis studies using the Xenopus oocytes heterologous expression system, and molecular modeling. We first investigated the biophysical properties of the channel. Our data showed that the increase in channel activity following an increase in cholesterol levels is a result of an increase in the open probability of the channel and not in the unitary current amplitude and channel conductance. Next, we investigated why and how cholesterol up‐regulates Kir3 channels. Our studies traced the unique impact of cholesterol on cardiac Kir3 channels (up‐regulation and not down‐regulation) to a transmembrane region that includes residues in both the inner and outer alpha helices. Moreover, we identified putative cholesterol binding sites that overlap with the gating hinge region in the transmembrane domains of both cardiac and neuronal channels. Together, our studies provide novel insights into the molecular mechanism that underlies cholesterol‐driven up‐regulation of Kir3 currents in the heart and in the brain.Support or Funding InformationScientist Development Grant 11SDG5190025 from the American Heart Association (to ARD)