The effect of brain ceramide on the maximum solubility of cholesterol in ternary mixtures of 1-palmitoyl-2-oleoyl-sn-glycero-3-phosphocholine (POPC), cholesterol, and ceramide was investigated at 37 °C by a cholesterol oxidase (COD) reaction rate assay and by optical microscopy. The COD reaction rate assay showed a sharp increase in cholesterol chemical potential as the cholesterol mole fraction approaches the solubility limit. A decline in the COD reaction rate was found after the formation of cholesterol crystals. The maximum solubility of brain ceramide in POPC bilayers was determined to be 68 ± 2 mol % by microscopy. We found that ceramide has a much higher affinity for the ordered bilayers than cholesterol, and the maximum solubility of cholesterol decreases with the increase in ceramide content. More significantly, the displacement of cholesterol by ceramide follows a 1:1 relation. At the cholesterol solubility limit, adding one more ceramide molecule to the lipid bilayer drives one cholesterol out of the bilayer into the cholesterol crystal phase, and cholesterol is incapable of displacing ceramide from the bilayer phase. On the basis of these findings, a ternary phase diagram of the POPC/cholesterol/ceramide mixture was constructed. The behaviors of ceramide and cholesterol can be explained by the umbrella model. Both ceramide and cholesterol have small polar headgroups and relatively large nonpolar bodies. In a PC bilayer, ceramide and cholesterol compete for the coverage of the headgroups of neighboring PC to prevent the exposure of their nonpolar bodies to water. This competition results in the 1:1 displacement as well as the displacement of cholesterol by ceramide from lipid raft domains.