Estrogen‐related receptor alpha (ERRα) has attracted increasing concerns. ERRα, orphan nuclear receptor, plays important roles in energy metabolism. Therefore, small molecule agonists of ERRα could be a potential therapeutic strategy in the treatment of metabolic diseases such as diabetes. Recently, Wei et al. identified cholesterol as the endogenous agonist of ERRα. However, the detailed molecular mechanism of cholesterol bound with ERRα remains ambiguous. Thus, in this study molecular docking and molecular dynamics (MD) simulations were performed to characterize how cholesterol affects the behavior of ERRα. Based on the results, we found that a proven residue Phe232 and others including Leu228, Glu235, Arg276, and Phe399 were key residues to ligand binding. A hydrogen‐bonding interaction between cholesterol and Glu235 ensured the orientation of the ligand in the binding pocket, while hydrophobic interactions between cholesterol and the above‐mentioned residues promoted the stability of ERRα‐cholesterol complex. In the presence of the proliferator‐activated receptor γ coactivator 1α (PGC‐1α), the cholesterol‐ERRα interaction became more stable. Interestingly, we observed that cholesterol facilitated the binding of ERRα with its coactivator PGC‐1α via stabilizing the conformation of helix 12 and the interaction surface of ERRα/PGC‐1α. Overall, these findings would be valuable for the future rational design of novel ERRα agonists.