Crystallization of membrane-embedded components within phospholipid bilayers represents a distinct class of phase transformation that occurs in structurally organized, molecularly crowded, and dimensionally constrained amphiphilic fluids. Using unstable supported lipid bilayers-transiently assembled via surface-mediated fusion and spreading of bicellar precursors containing supersaturating concentrations of cholesterol-we monitor here the morphological evolution and dynamics of cholesterol crystallization within the membrane media. We find that the three-dimensional (3D) crystallization of cholesterol from an unstable two-dimensional (2D) in-membrane state proceeds via well-defined sequence of intermediates, including filaments, rods, helices, and 2D rectangular plates, before transforming into three-dimensional quadrilateral crystals-characteristic triclinic habit of cholesterol monohydrate. Our observations thus demonstrate that these structurally distinct cholesterol polymorphs are related to one another, contrasting with the notion that they represent disparate crystal habits stabilized by differences in lipid environments. Moreover, these observations indicate that cholesterol crystallization within the membrane media follows nonclassical multistep crystallization governed by the heuristic "Ostwald's rule of stages", which predicts that the crystallization kinetics proceed down the free energy landscape in a multistage process where each successive phase transition incurs the smallest loss of free energy relative to its predecessor. Furthermore, we find that the well-known cholesterol extracting agent, β-cyclodextrin, acts by catalytically tipping the equilibrium in favor of crystal growth adding cholesterol from the membrane phase to the crystal in a layer-by-layer manner. Taken together, our results provide a new description of in-membrane cholesterol crystallization and may pave for a screening tool for identifying molecular candidates that target cholesterol crystals.