Sphingomyelins (SMs) and sterols are important constituents of the plasma membrane and have also been identified as major lipid components in membrane rafts. Using SM analogs with decreasing headgroup methylation, we systemically analyzed the effect of headgroup size on membrane properties and interactions with cholesterol. An increase in headgroup size resulted in a decrease in the main phase transition. Atom-scale molecular-dynamics simulations were in agreement with the fluorescence anisotropy experiments, showing that molecular areas increased and acyl chain order decreased with increasing headgroup size. Furthermore, the transition temperatures were constantly higher for SM headgroup analogs compared to corresponding phosphatidylcholine headgroup analogs. The sterol affinity for phospholipid bilayers was assessed using a sterol-partitioning assay and an increased headgroup size increased sterol affinity for the bilayer, with a higher sterol affinity for SM analogs as compared to phosphatidylcholine analogs. Moreover, the size of the headgroup affected the formation and composition of cholesterol-containing ordered domains. Palmitoyl-SM (the largest headgroup) seemed to attract more cholesterol into ordered domains than the other SM analogs with smaller headgroups. The ordering and condensing effect of cholesterol on membrane lipids was also largest for palmitoyl-SM as compared to the smaller SM analogs. The results show that the size of the SM headgroup is crucially important for SM-SM and SM-sterol interactions. Our results further emphasize that interfacial electrostatic interactions are important for stabilizing cholesterol interactions with SMs.