We have prepared palmitoyl sphingomyelin (PSM) analogs in which either the 2-NH was methylated to NMe, the 3-OH was methylated to OMe, or both were methylated simultaneously. The aim of the study was to determine how such modifications in the membrane interfacial region of the molecules affected interlipid interactions in bilayer membranes. Measuring DPH anisotropy in vesicle membranes prepared from the SM analogs, we observed that methylation decreased gel-phase stability and increased fluid phase disorder, when compared to PSM. Methylation of the 2-NH had the largest effect on gel-phase instability (T(m) was lowered by ~7°C). Atomistic molecular dynamics simulations showed that fluid phase bilayers with methylated SM analogs were more expanded but thinner compared to PSM bilayers. It was further revealed that 3-OH methylation dramatically attenuated hydrogen bonding also via the amide nitrogen, whereas 2-NH methylation did not similarly affect hydrogen bonding via the 3-OH. The interactions of sterols with the methylated SM analogs were markedly affected. 3-OH methylation almost completely eliminated the capacity of the SM analog to form sterol-enriched ordered domains, whereas the 2-NH methylated SM analog formed sterol-enriched domains but these were less thermostable (and thus less ordered) than the domains formed by PSM. Cholestatrienol affinity to bilayers containing methylated SM analogs was also markedly reduced as compared to its affinity for bilayers containing PSM. Molecular dynamics simulations revealed further that cholesterol's bilayer location was deeper in PSM bilayers as compared to the location in bilayers made from methylated SM analogs. This study shows that the interfacial properties of SMs are very important for interlipid interactions and the formation of laterally ordered domains in complex bilayers.