Cholesterol is an essential component of cell membranes that is required to maintain both membrane structural integrity and fluidity. However, the dynamics and functional role of cholesterol in the cytosolic leaflet of the plasma membrane is not clear, partially because the available probes are subject to technical limitations. Here (p. 1422), Masashi Maekawa and Greg Fairn report on the development of a new probe for cholesterol. This probe was based on domain four (D4) of the theta-toxin produced by Clostridium perfringens. By inserting a mutation in D4 that increased its affinity for cholesterol, the authors were able to monitor cholesterol in cytosolic membrane leaflets. They then used this new probe to show that phosphatidylserine (PtdSer) is required to retain cholesterol in the inner leaflet of the plasma membrane. Experiments using model membranes revealed that PtdSer acted by inducing phase separation in cholesterol-containing lipid bilayers, resulting in cholesterol being shielded from cholesterol oxidase. Finally, the authors found that the absence of cholesterol in the cytosolic leaflet of the plasma membrane caused the membrane protein flotillin-1 to relocate to endocytic organelles. This new probe should aid our understanding of how the plasma membrane is organised, and of the proteins and signalling hubs that reside there.