Purpose: There is evidence that cholesterol affects the ATPase and transport functions of P-glycoprotein (P-gp). To study the influence of cholesterol on P-gp in a well defined lipid environment, we reconstituted P-gp in egg phosphatidylcholine (PhC) and PhC/cholesterol proteoliposomes with negligible residual amounts of detergents. Materials and methods: P-gp proteoliposomes were prepared by continuous dialysis from micelles consisting of P-gp, lipids, sodium dodecyl sulfate and cholate. Basal and modulator-induced ATPase activities were studied in an established enzyme assay. Modulator affinities to P-gp and to the lipid bilayers were determined by equilibrium dialysis. Results: In the absence of cholesterol the basal ATPase activity was six fold lower than in the presence of 20 or 40% cholesterol, and no P-gp binding and ATPase induction was detected for the tested modulators verapamil and progesterone. In proteoliposomes containing 20 and 40% cholesterol, respectively, the modulators showed significant P-gp binding and ATPase activation. The concentration of the modulators for half maximal activation of the ATPase was higher with 40% than with 20% cholesterol. Conclusions: Cholesterol influences P-gp in three ways: (a) it enhances its basal ATPase activity, (b) it renders P-gp sensitive towards the modulators verapamil and progesterone and (c) it affects the modulator concentration at half maximal ATPase activatio