The excess heat capacity (Δ C ) of mixtures of dipalmitoylphosphatidylcholine (DPPC) and cholesterol (Chol) is examined in detail in large unilamellar vesicles (LUVs), both experimentally, using differential scanning calorimetry (DSC), and theoretically, using a three-state Ising model. The model postulates that DPPC can access three conformational states: gel, liquid-disordered (L), and liquid-ordered (L). The L state, however, is only available if coupled with interaction with an adjacent Chol. Δ C was calculated using Monte Carlo simulations on a lattice and compared to experiment. The DSC results in LUVs are compared with literature data on multilamellar vesicles (MLVs). The enthalpy change of the complete phase transition from gel to L is identical in LUVs and MLVs, and the melting temperatures ( T) are similar. However, the DSC curves in LUVs are significantly broader, and the maxima of Δ C are accordingly smaller. The parameters in the Ising model were chosen to match the DSC curves in LUVs and the nearest-neighbor recognition (NNR) data. The model reproduces the NNR data very well. It also reproduces the phase transition in DPPC, the freezing point depression induced by Chol, and the broad component of Δ C in DPPC/Chol LUVs. However, there is a sharp component, between 5 and 15 mol % Chol, that the model does not reproduce. The broad component of Δ C becomes dominant as Chol concentration increases, indicating that it involves melting of the L phase. Because the simulations reproduce this component, the conclusions regarding the nature of the phase transition at high Chol concentrations and the structure of the L phase are important: there is no true phase separation in DPPC/Chol LUVs. There are large domains of gel and L phase coexisting below T of DPPC, but above T the three states of DPPC are mixed with Chol, although clusters persist.