Most lipid formulations require cholesterol for successful transfection, but the precise reason remains to be more clearly understood. Here, we have studied the effect of cholesterol on the transfection efficiency (TE) of lipoplexes in vitro. Addition of cholesterol to highly effective DC-Chol-DOPE/DNA lipoplexes increases TE, with 40 mol% cholesterol yielding about 10-fold improvement. The transfection mechanisms of cholesterol-containing lipoplexes have been investigated by combining dynamic light scattering, synchrotron small angle X-ray scattering, laser scanning confocal microscopy and transfection efficiency measurements. Our results revealed that cholesterol-containing lipoplexes enter the cells partially by membrane fusion and this mechanism accounts for efficient endosomal escape. We also found evidence that formulations with high cholesterol content are not specifically targeted to metabolic degradation. These studies will contribute to rationally design novel delivery systems with superior transfection efficiency.