The structure and thermotropic properties of N-palmitoyl sphingomyelin (C16:0-SM) and its interaction with cholesterol and dipalmitoylphosphatidylcholine (DPPC) have been studied by differential scanning calorimetry (DSC) and X-ray diffraction methods. DSC of hydrated multi-bilayers of C16:0-SM shows reversible chain-melting transitions. On heating, anhydrous C16:0-SM exhibits an endothermic transition at 75 degrees C (Delta H = 4.0 kcal/mol). Increasing hydration progressively lowers the transition temperature (T-M) and increases the transition enthalpy (Delta H), until limiting values (T-M = 41 degrees C, Delta H = 7.5 kcal/mol) are observed for hydration values >25 wt % H2O. X-ray diffraction at temperatures below (29 degrees C) T-M show a bilayer gel structure (d = 73.5 Angstrom, sharp 4.2 Angstrom reflection) for C16:0-SM at full hydration; above T-M, at 55 degrees C, a bilayer liquid-crystal phase is present (d = 66.6 Angstrom, diffuse 4.6 Angstrom reflection). Addition of cholesterol to C16:0-SM bilayers results in a progressive decrease in the enthalpy of the transition at 41 degrees C, and no cooperative transition is detected at >50 mol % cholesterol. X-ray diffraction shows no difference in the bilayer periodicity, position/width of the wide-angle reflections, or electron density profiles at 29 and 55 degrees C when 50 mol % cholesterol is present. Thus, cholesterol inserts into C16:0-SM bilayers progressively removing the chain-melting transition and changing the structural characteristics of the bilayer. DSC and X-ray diffraction data show that DPPC is completely miscible with C16:0-SM bilayers in both the gel and liquid-crystalline phases; however, 30 mol % C16:0-SM removes the pre-transition exhibited by DPPC.