Cholesterol regulates the function of several membrane proteins associated with lipid rafts. It does so by controlling the formation or depletion of lipid rafts in the plasma membrane. The lipid rafts house the membrane proteins and forming or depleting the lipid rafts moves the proteins in or out of the raft environment, thereby exposing them to a new environment that can activate or deactivate the proteins. For example, cholesterol directly regulates the affinity of palmitoylated proteins for GM1 containing lipid rafts. Cholesterol signaling through lipid rafts can be attenuated by phosphatidylinositol 4,5 bisphosphate signaling (PIP2). PIP2 contains mostly polyunsaturated lipids that partition away from saturated lipids. Proteins that bind both lipid rafts and PIP2 are negatively regulated by high levels of PIP2.  This effect was observed with phospholipase D.
In the brain, astrocytes make the cholesterol and transport it to nerves to control their function. In this sense, cholesterol functions as a hormone.