Plasma membrane induced protein folding and conformational transitions play a central role in cellular homeostasis. Several transmembrane proteins are folded in the complex lipid milieu to acquire a specific structure and function. Bacterial pore forming toxins (PFTs) are proteins expressed by a large class of pathogenic bacteria that exploit the plasma membrane environment to efficiently undergo secondary structure changes, oligomerize and form transmembrane pores. Unregulated pore formation causes ion imbalance leading to cell death and infection. Determining the free energy landscape of these membrane driven transitions remains a challenging problem. Although cholesterol recognition is required for lytic activity of several proteins in the PFT family of toxins, the regulatory role of cholesterol for the α-PFT, cytolysin A expressed by E. coli is less understood. In a recent free energy computation, we have shown that the β-tongue, a critical membrane inserted motif of the ClyA toxin, has an on-pathway partially unfolded intermediate that refolds into the helix-turn-helix motif of the pore state. To understand the molecular role played by cholesterol, we have carried out string method based computations in membranes devoid of cholesterol which reveals an increase of ~30 times in the free energy barrier for the loss of β-sheet secondary structure when compared with membranes containing cholesterol. Specifically the tyrosine-cholesterol interaction was found to be critical to stabilizing the unfolded intermediate. In the absence of cholesterol the membrane was found to undergo large curvature deformations in both leaflets of the membrane accompanied by bilayer thinning. Our study with the α-toxin, ClyA illustrates that cholesterol is critical to catalyzing and stabilizing the unfolded state of the β-tongue in the membrane, opening up fresh insights into cholesterol assisted unfolding of membrane proteins.