Bacillus cereus sphingomyelinase activity was assayed on large unilamellar vesicles composed of sphingomyelin (SM)/cholesterol (Ch) mixtures at varying proportions. Natural (egg) SM was used with a gel-fluid transition temperature at ca. 40 degrees C. When the enzyme was assayed at 37 degrees C, the activity on pure SM was exceedingly low, but a small increase was observed as soon as some Ch was added, and a large enhancement of activity occurred with Ch proportions above 25 mol%. The data were interpreted in terms of sphingomyelinase activity being higher in the cholesterol-induced liquid-ordered phase than in the gel phase. The abrupt increase in activity above 25 mol% Ch would occur as a result of a change in domain connectivity, when the Ch-rich liquid-ordered domains coalesced. In equimolar SM/Ch mixtures, that were in the liquid-ordered state in a wide range of temperatures, sphingomyelinase activity was virtually constant in the 30-70 degrees C range. The results demonstrate that at the mammalian and bird physiological temperatures Ch modulates sphingomyelinase activity, and that this can occur precisely because most SM have a gel-fluid transition temperature above the physiological temperature range. In addition, Ch activation of sphingomyelinase and the strong affinity of Ch for SM allow the rapid, localised and self-contained production of the metabolic signal ceramide in specific microdomains (rafts).