Motivated by its important role in gene delivery, we have studied the effect of cholesterol and analogs on the transfection efficiency (TE) of lamellar cationic liposome-DNA (CL-DNA) complexes in vitro. Addition of cholesterol to low-transfecting DOTAP/DOPC-DNA complexes increases TE, with 15 mol % cholesterol already yielding 10-fold improvement. Steroids lacking the alkyl tail only modestly enhance TE, while molecules retaining it strongly enhance TE. All steroid-containing CL-DNA complexes exhibit the lamellar structure. The increase in experimentally determined membrane charge density (a universal parameter governing the TE of lamellar CL-DNA complexes) with cholesterol content alone cannot account for the rapid increase of TE. Instead, the reduction of the hydration repulsion layer of the membrane, caused by replacement of DOPC by cholesterol, promotes fusion between cationic membranes of CL-DNA complexes and anionic endosomal membranes, thus facilitating release of complexes and enhancing TE.