Changes in the cholesterol levels dynamically alter the microenvironment of the plasma membrane and have been shown to modify functions of ion channels. However, the cellular effect of these modifications is largely unknown. In this report, we demonstrate that cholesterol levels modulate neuronal excitability in rat hippocampal neurons. Reduction of cholesterol levels shortened the duration and increased the firing frequency and peak amplitude of action potentials, while enrichment of cholesterol reversed the effect. Furthermore, we showed that reduction of cholesterol levels increased, while enrichment of cholesterol decreased the amplitude of the delayed rectifier I(K) currents. On the other hand, reduction of cholesterol levels slowed down the inactivation of the fast transient I(A) currents, but enrichment of cholesterol had no significant effect on the I(A) currents. Besides, alteration in cholesterol levels had no significant effect on the action potential in the presence of blockers for both I(K) and I(A) currents. These observations demonstrate that cholesterol levels bi-directionally regulate the neuronal excitability mainly through modifications of the I(K) and I(A) currents, suggesting an optimum level of cholesterol for the optimum excitability of neurons. Alterations in the neuronal cholesterol levels have been associated with aging, cognitive decline, neurodegenerative diseases, etc. Therefore, our findings are important for a deeper understanding of the relationship between the cholesterol level and dysfunctions of the brain at the molecular level.