The smoothened (SMO) receptor belongs to the superfamily of class F G protein-coupled receptors (GPCRs) and is a potential drug target in several types of cancer. It has two ligand binding sites, respectively, in the cysteine-rich domain (CRD) and the transmembrane domain (TMD). It has been shown that cholesterol is important for its activation and function. However, the molecular-level understanding of SMO dynamics in the presence of cholesterol has not been explored in sufficient detail. In this work, we have carried out atomistic molecular dynamics simulations totaling 3.6 μs to analyze the effect of cholesterol binding to TMD and/or CRD on the structure and dynamics of the SMO receptor. Our results show that the presence of cholesterol in the CRD and TMD, respectively, alters the conformational dynamics of SMO differently. We reported that the reorganization of the D-R-E network at the extracellular end of the TMD is important for the high activity of SMO. In general, the transmembrane helices 5, 6, and 7 and helix 8 are most affected, which, in turn, leads to changes in the CRD and intracellular cytoplasmic domain (ICD) dynamics patterns depending on the presence or absence of cholesterol in the CRD and/or the TMD. We have also reported that the interaction of membrane lipids with SMO is different in different SMO states. These results agree with the experimental structural observations and data of cholesterol-bound and unbound structures of SMO and add to our molecular understanding of the SMO-cholesterol interaction.