Although it is well known that the central nervous system (CNS) and the peripheral nervous system (PNS), and in particular their myelin, contain large quantities of cholesterol, the specific role of this lipid in the structure and function of the nervous system remains elusive. In this review, we will summarize progress in our understanding of the role of cholesterol in the CNS and PNS with a particular emphasis on myelin. In the first part, we will provide an overview of the role of cholesterol in the biochemical composition and the structure of myelin, followed by a summary of the current knowledge of the biosynthesis and metabolism of cholesterol within neural tissues. Finally, we will review the association of cholesterol with various pathologies affecting the nervous system, including Alzheimer’s disease, tellurium toxicity, and the Smith—Lemli—Opitz syndrome.