Epifluorescence microscopy was used to visualize the formation of lateral fluid domains in monolayers of dipalmitoylphosphatidylcholine (DPPC) or N-palmitoylsphingomyelin ( N-P-SM) containing cholesterol. NBD-Cholesterol was used as a fluorophore at 1 mol%. Image analysis of the monolayer surface texture (taken during the first compression at 22° C and 1.5 mN/m) showed that the area of the liquid-condensed domains increased (from zero to 90% of the total area) with increasing cholesterol concentration (5 to 40 mol%), both in DPPC and N-P-SM mixed monolayers. The liquid-condensed domains had a significantly larger size in DPPC than in N-P-SM monolayers, but were more numerous in N-P-SM monolayers. Lateral domain boundary lines begun to dissipate at a certain surface pressure. This characteristic phase transformation pressure was markedly higher in N-P-SM (3–12 mN/m) than in DPPC mixed monolayers (1.8–3.7 mN/m), and also increased with increasing cholesterol concentration. If a monolayer was first compressed above the phase transformation pressure (to 15 mN/m), and then expanded to a lateral surface pressure of 1.5 mN/m, the liquid-condensed domains coalesced if the cholesterol concentrations was 25 mol% or higher (both DPPC and N-P-SM monolayers). In conclusion, the cholesterol/DPPC and cholesterol/ N-P-SM interactions in the monolayers appeared to differ to a large extent, since the liquid-condensed domains in the two systems differed in number, size, and properties. Differences in molecular properties were reflected in the phase transformation pressures, which were markedly higher in cholesterol/ N-P-SM monolayers as compared to cholesterol/DPPC membranes.