Signal transduction by the human epidermal growth factor receptor (EGFR) is modulated by its ligands as well as by the various compounds on the plasma membrane (PM), including cholesterol. Here, using single-molecule coimmunoimmobilization, we found that cholesterol in the inner leaflet of PM plays an essential role in ligand-dependent EGFR activation. This was done by direct and quantitative examination of the interaction between EGFR and cholesterol on the PM of a living cell. Structural analysis using molecular dynamics simulations and nuclear magnetic resonance spectroscopy further revealed that cholesterol in the inner leaflet is critically important for the transition of the dimeric transmembrane domain (TMD) of the receptor to the active conformation. We also identified the specific pattern of residues Ile-Gly-Leu of EGFR TMD regulating inner leaflet cholesterol binding and ligand-activated EGFR by screening via site-directed mutagenesis. Our results indicate that cholesterol in the inner leaflet of PM is a key checkpoint of EGFR activation triggered by EGF.