The nearest-neighbor preferences of three exchangeable lipid monomers (two phospholipids that differ in length, A and B, and a derivative of cholesterol, C) have been quantified in the fluid bilayer state by use of the nearest-neighbor recognition method (Davidson, S. K. M.; Regen, S. L. Chem. Rev. 1997, 97, 1269). Thus, an analysis of the equilibrium dimer distributions has shown that (i) the sterol favors both phospholipids as nearest neighbors relative to other sterol molecules, (ii) that this recognition is selective (i,e., the sterol favors the longer phospholipid as a nearest neighbor over the shorter one, especially when the sterol concentrations in the bilayer is high (e.g., 40 mol %), and (iii) the phospholipids, themselves, are unable to recognize each other. Taken together, these findings indicate that the probable mechanism by which cholesterol induces homoassociation of A and B in analogous bilayers is one in which the sterol "pulls" two or more of the longer phospholipid monomers (B) out of a "sea" of randomly mixed A and B. These findings also lend support for the notion of cholesterol - phospholipid complexation in fluid bilayers. The biological implications of these findings are briefly discussed.