The structure of fully hydrated bilayers composed of equimolar proportions of palmitoylsphingomyelin (PSM) and cholesterol has been examined by synchrotron X-ray powder diffraction and atomistic molecular dynamics (MD) simulations. Two coexisting bilayer structures, which are distinguished by the transbilayer phosphate-phosphate distance of coupled PSM molecules, are observed by diffraction at 37 °C. The MD simulations reveal that PSM molecules in the thicker membrane are characterized by more ordered, more extended, and less interdigitated hydrocarbon tails compared to those in the thinner membrane. Intermolecular hydrogen bonds further distinguish the two bilayer structures, and we observe the disruption of a sphingomyelin intermolecular hydrogen bond network induced by the proximity of cholesterol. Through an unsupervised clustering of interatomic distances, we show for the first time that the asymmetry of phospholipids is important in driving their interactions with cholesterol. We identify four distinct modes of interaction, two of which lead to the dehydration of cholesterol. These two modes of interaction provide the first description of precise physical mechanisms underlying the umbrella model, which itself explains how phospholipids may shield cholesterol from water. The most dehydrating mode of interaction is particular to the N-acylated fatty acid moiety of PSM and thus may explain the long-held observation that cholesterol preferentially mixes with sphingomyelins over glycerophospholipids.