Listeriolysin O (LLO) binds to cholesterol-containing membranes in which it oligomerizes to form pores. Preincubation of the toxin with cholesterol is known to inhibit haemolysis, whereas the oxidized form of cholesterol has no inhibitory effect. Using immunoblot analyses and flow cytometry we demonstrate that preincubation with cholesterol does not influence binding of the listeriolysin-cholesterol complex to red blood cells, eukaryotic cells or artificial membranes. Lytic activity of membrane-bound LLO inactivated by cholesterol can be restored by enzymatic treatment with cholesterol oxidase. To determine the step at which cholesterol inhibits lytic activity, we looked for pore formation using electron microscopy. Pores formed by purified listeriolysin could be directly visualized using erythrocyte ghosts. This property was lost upon incubation of the toxin with cholesterol. Quantitative analysis strongly suggest that inhibition of lysis by cholesterol is not due to decreased binding of listeriolysin to target membranes, but rather to an interference with a subsequent step leading to polymerization of the toxin.