The effects of cholesterol on the ion-channel function of the Torpedo acetylcholine receptor (nAChR) and the novel lipid-exposed gain in function alpha C418W mutation have been investigated in Xenopus laevis oocytes. We found conditions to increase the cholesterol/phospholipid (C/P) molar ratio on the plasma membrane of Xenopus oocytes from 0.5 to 0.87, without significant physical damage or change in morphology to the oocytes. In addition, we developed conditions to deplete endogenous cholesterol from oocytes using a methyl-beta-cyclodextrin incubation procedure without causing membrane instability of the cells. Methyl-beta-cyclodextrin was also used to examine the reversibility of the inhibitory effect of cholesterol on AChR function. Depletion of 43% of endogenous cholesterol from oocytes (C/P = 0.3) did not show any significant change in macroscopic response of the wild type, whereas in the alpha C418W mutant the same cholesterol depletion caused a dramatic gain-in-function response of this lipid-exposed mutation in addition to the increased response caused by the mutation itself. Increasing the C/P ratio to 0.87 caused an inhibition of the macroscopic response of the Torpedo wild type of about 52%, whereas the alpha C418W mutation showed an 81% inhibition compared with the responses of control oocytes. The wild type receptor did not recover from this inhibition when the excess cholesterol was depleted to near normal C/P ratios; however, the alpha C418W mutant displayed 63% of the original current, which indicates that the inhibition of this lipid-exposed mutant was significantly reversed. The ability of the alpha C418W mutation to recover from the inhibition caused by cholesterol enrichment suggests that the interaction of cholesterol with this lipid-exposed mutation is significantly different from that of the wild type. The present data demonstrate that a single lipid-exposed position in the AChR could alter the modulatory effect of cholesterol on AChR function.