We previously demonstrated that mouse sperm capacitation is accompanied by a time-dependent increase in protein tyrosine phosphorylation that is dependent on the presence of BSA, Ca²⁺, and NaHCO₃, all three of which are also required for this maturational event. We also demonstrated that activation of protein kinase A (PK-A) is upstream of this capacitation-associated increase in protein tyrosine phosphorylation. BSA is hypothesized to modulate capacitation through the removal of cholesterol from the sperm plasma membrane. In this report, we demonstrate that incubation of mouse sperm medium containing BSA results in a release of cholesterol from the sperm plasma membrane to the medium; release of this sterol does not occur in medium devoid of BSA. We next determined whether cholesterol release leads to changes in protein tyrosine phosphorylation. Blocking the action of BSA by adding exogenous cholesterol-SO⁻₄ to the BSA-containing medium inhibits the increase in protein tyrosine phosphorylation as well as capacitation. This inhibitory effect is overcome by (1) the addition of increasing concentrations of BSA at a given concentration of cholesterol-SO⁻₄ and (2) the addition of dibutyryl cAMP plus IBMX. High-density lipoprotein (HDL), another cholesterol binding protein, also supports the capacitation-associated increase in protein tyrosine phosphorylation through a cAMP-dependent pathway, whereas proteins that do not interact with cholesterol have no effect. HDL also supports sperm capacitation, as assessed by fertilization in vitro. Finally, we previously demonstrated that HCO⁻₃ is necessary for the capacitation-associated increase in protein tyrosine phosphorylation and demonstrate here, by examining the effectiveness of HCO⁻₃ or BSA addition to sperm on protein tyrosine phosphorylation, that the HCO⁻₃ effect is downstream of the site of BSA action. Taken together, these data demonstrate that cholesterol release is associated with the activation of a transmembrane signal transduction pathway involving PK-A and protein tyrosine phosphorylation, leading to functional maturation of the sperm.