Epifluorescence microscopy studies of mixtures of phospholipids and cholesterol at the air-water interface often exhibit coexisting liquid phases. The properties of these liquids point to the formation of "condensed complexes" between cholesterol and certain phospholipids, such as sphingomyelin. It is found that monolayers that form complexes can incorporate a low concentration of a ganglioside G(M1). This glycolipid is visualized by using a fluorescently labeled B subunit of cholera toxin. Three coexisting liquid phases are found by using this probe together with a fluorescent phospholipid probe. The three liquid phases are identified as a phospholipid-rich phase, a cholesterol-rich phase, and a condensed complex-rich phase. The cholera toxin B labeled ganglioside G(M1) is found exclusively in the condensed complex-rich phase. Condensed complexes are likely present in animal cell membranes, where they should facilitate the formation of specialized domains such as rafts. Condensed complexes also have a major effect in determining the chemical activity of cholesterol. It is suggested that this chemical activity plays an essential role in the regulation of cholesterol biosynthesis. Gradients in the chemical activity of cholesterol should likewise govern the rates and direction of intracellular intermembrane cholesterol transport.