The combined effects of cholesterol, a major cell membrane component, and the lipid second messenger diacylglycerol on the activity of protein kinase C (PK-C) and the structure of phosphatidylcholine/phosphatidylserine bilayers were investigated using specific PK-C assays and H-2 NMR. Whereas the classical activation of PK-C was observed as an effect of diacylglycerol, in the absence of this second messenger, cholesterol did not affect PK-C activity. A novel effect of amplified PK-C activation was observed in the presence of both cholesterol and diacylglycerol concentrations within the physiological range of each of these components. H-2 NMR results suggest that this phenomenon is due to cholesterol- and diacylglycerol-induced increased propensity of the lipids to adopt nonbilayer phases, effectively destabilizing the bilayer structure. The magnitude of the effect was a function of cholesterol concentration, implying that laterally separated cell membrane domains with distinct cholesterol concentrations have the capacity to differ in their sensitivity to extracellular stimuli.