The fluorescence generalized polarization (GP) of 2-dimethylamino-6-lauroylnaphthalene (Laurdan) reveals different effects of cholesterol on the phase behavior of phospholipid bilayers. Phospholipid vesicles composed of gel, liquid-crystalline, and coexisting domains of the two phases have been studied at temperatures from 1 to 65 degrees C, without cholesterol and with cholesterol concentrations of 3-50 mol %. Laurdan GP measurements show the general effect of cholesterol of increasing the molecular dynamics of the gel and of decreasing the molecular dynamics of the liquid-crystalline phase. In the liquid-crystalline phase, the increased order yields Laurdan GP values close to those obtained in the gel phase. At cholesterol concentrations > 15 mol % a phase transition cannot be detected. Using the wavelength dependence of the excitation and emission GP spectra we determine that differences between the two phospholipid phases cannot be detected. In particular, in vesicles composed of coexisting gel and liquid-crystalline phases the GP wavelength dependence characteristic of coexisting domains cannot be observed at cholesterol concentrations > or = 15 mol %. Cholesterol causes the decrease in both the polarity and the dipolar relaxation effects on the neighborhood of the fluorescent naphthalene moiety of Laurdan. Probably because of a cholesterol-induced increase in the bilayer packing, these effects do not occur continuously with the increase of cholesterol concentration in the bilayer. Cholesterol concentrations inducing higher Laurdan GP values have been determined at about 5, 10, 15, 30, and 45 mol % with respect to phospholipids. We propose that the formation of ordered molecular microdomains at critical cholesterol concentrations can explain the occurrence of the observed discontinuities.