We report a 1.4-ns constant-pressure molecular dynamics simulation of cholesterol at 12.5 mol% in a dipalmitoylphosphatidylcholine (DPPC) bilayer at 50 degrees C and compare the results to our previous simulation of a pure DPPC bilayer. The interlamellar spacing was increased by 2.5 A in the cholesterol-containing bilayer, consistent with x-ray diffraction results, whereas the bilayer thickness was increased by only 1 A. The bilayer/water interface was more abrupt because the lipid headgroups lie flatter to fill spaces left by the cholesterol molecules. This leads to less compensation by the lipid headgroups of the oriented water contribution to the membrane dipole potential and could explain the experimentally observed increase in the magnitude of the dipole potential by cholesterol. Our calculations suggested that 12.5 mol% cholesterol does not significantly affect the conformations and packing of the hydrocarbon chains and produces only a slight reduction in the empty free volume. However, cholesterol has a significant influence on the subnanosecond time scale lipid dynamics: the diffusion constant for the center-of-mass "rattling" motion was reduced by a factor of 3, and the reorientational motion of the methylene groups was slowed along the entire length of the hydrocarbon chains.