The BSEP/ABCB11 transmembrane protein translocates taurine-and glycine-conjugated bile salts across the hepatocyte bilayer driven by ATP-hydrolysis. Direct inhibition of BSEP/ABCB11 leads to idiosyncratic drug-induced liver injury. ABCB11 is localized within the cholesterol-enriched lipid raft, and membrane cholesterol depletion leads to impaired taurocholate transport. However, structural insight into the mechanism of the cholesterol-mediated regulation of ABCB11 activity remains elusive. We used extensive molecular dynamics simulation coupled with well-tempered metadynamics to elucidate the role of membrane cholesterol in the structure and dynamics of ABCB11. We identified specific high-residence binding sites for cholesterol within the transmembrane domain. The free-energy simulations have elucidated that the bound cholesterol stabilizes the "inward-open" conformation of the protein. Cholesterol−ABCB11 interactions trigger allosteric communications between the transmembrane and nucleotide-binding domains through the linker region. Cholesterol depletion destabilizes the allosteric network of the protein. As a result, it adopts a more collapsed form with a reduced volume of the taurocholate-binding pocket.