Biochemical and cell-biological experiments have identified cholesterol as an important component of lipid 'rafts' and related structures (e.g., caveolae) in mammalian cell membranes, and membrane cholesterol levels as a key factor in determining raft stability and organization. Studies using cholesterol-containing bilayers as model systems have provided important insights into the roles that cholesterol plays in determining lipid raft behavior. This review will discuss recent progress in understanding two aspects of lipid-cholesterol interactions that are particularly relevant to understanding the formation and properties of lipid rafts. First, we will consider evidence that cholesterol interacts differentially with different membrane lipids, associating particularly strongly with saturated, high-melting phospho- and sphingolipids and particularly weakly with highly unsaturated lipid species. Second, we will review recent progress in reconstituting and directly observing segregated raft-like (liquid-ordered) domains in model membranes that mimic the lipid compositions of natural membranes incorporating raft domains.