Summary: Beta amyloid (βA) plays a central role in the pathogenesis of the most common and devastating neurodegenerative disorder, Alzheimer’s disease (AD). The mechanisms of βA neurotoxicity remain controversial, but include dysregulation of calcium homeostasis and oxidative stress. A large body of data suggest that cholesterol plays a significant role in AD. In mixed cultures containing hippocampal neurons and astrocytes, we have shown that neurotoxic βA peptides (1–42 and 25–35) cause sporadic cytosolic calcium ([Ca²⁺]_c) signals in astrocytes but not in neurons, initiating a cascade that ends in neuronal death. We now show, using the cholesterol‐sensitive fluorescent probe, Filipin, that membrane cholesterol is significantly higher in astrocytes than in neurons and mediates the selective response of astrocytes to βA. Thus, lowering [cholesterol] using mevastatin, methyl‐β‐cyclodextrin or filipin prevented the βA‐induced [Ca²⁺]_c signals, while increased membrane [cholesterol] increased βA‐induced [Ca²⁺]_c signals in both neurons and astrocytes. Addition of βA to lipid bilayers caused the appearance of a conductance that was significantly higher in membranes containing cholesterol. Increasing membrane [cholesterol] significantly increased βA‐induced neuronal and astrocytic death. We conclude that a high membrane [cholesterol] promotes βA incorporation into membranes and increased [Ca²⁺]_c leading to cell death.