Cholesterol is an important regulator of membrane protein function. However, the exact mechanisms involved in this process are still not fully understood. Here we study how the tertiary and quaternary structure of the mitochondrial translocator protein TSPO, which binds cholesterol with nanomolar affinity, is affected by this sterol. Residue-specific analysis of TSPO by solid-state NMR spectroscopy reveals a dynamic monomer-dimer equilibrium of TSPO in the membrane. Binding of cholesterol to TSPO's cholesterol-recognition motif leads to structural changes across the protein that shifts the dynamic equilibrium towards the translocator monomer. Consistent with an allosteric mechanism, a mutation within the oligomerization interface perturbs transmembrane regions located up to 35 Å away from the interface, reaching TSPO's cholesterol-binding motif. The lower structural stability of the intervening transmembrane regions provides a mechanistic basis for signal transmission. Our study thus reveals an allosteric signal pathway that connects membrane protein tertiary and quaternary structure with cholesterol binding.