We employ 100-ns molecular dynamics simulations to study the influence of cholesterol on structural and dynamic properties of dipalmitoylphosphatidylcholine bilayers in the fluid phase. The effects of the cholesterol content on the bilayer structure are considered by varying the cholesterol concentration between 0 and 50%. We concentrate on the free area in the membrane and investigate quantities that are likely to be affected by changes in the free area and free volume properties. It is found that cholesterol has a strong impact on the free area properties of the bilayer. The changes in the amount of free area are shown to be intimately related to alterations in molecular packing, ordering of phospholipid tails, and behavior of compressibility moduli. Also the behavior of the lateral diffusion of both dipalmitoylphosphatidylcholine and cholesterol molecules with an increasing amount of cholesterol can in part be understood in terms of free area. Summarizing, our results highlight the central role of free area in comprehending the structural and dynamic properties of membranes containing cholesterol.