Pore-forming toxins (PFTs) form nanoscale pores across target membranes causing cell death. Cytolysin A (ClyA) from is a prototypical α-helical toxin that contributes to cytolytic phenotype of several pathogenic strains. It is produced as a monomer and, upon membrane exposure, undergoes conformational changes and finally oligomerizes to form a dodecameric pore, thereby causing ion imbalance and finally cell death. However, our current understanding of this assembly process is limited to studies in detergents, which do not capture the physicochemical properties of biological membranes. Here, using single-molecule imaging and molecular dynamics simulations, we study the ClyA assembly pathway on phospholipid bilayers. We report that cholesterol stimulates pore formation, not by enhancing initial ClyA binding to the membrane but by selectively stabilizing a protomer-like conformation. This was mediated by specific interactions by cholesterol-interacting residues in the N-terminal helix. Additionally, cholesterol stabilized the oligomeric structure using bridging interactions in the protomer-protomer interfaces, thereby resulting in enhanced ClyA oligomerization. This dual stabilization of distinct intermediates by cholesterol suggests a possible molecular mechanism by which ClyA achieves selective membrane rupture of eukaryotic cell membranes. Topological similarity to eukaryotic membrane proteins suggests evolution of a bacterial α-toxin to adopt eukaryotic motifs for its activation. Broad mechanistic correspondence between pore-forming toxins hints at a wider prevalence of similar protein membrane insertion mechanisms.