Cholesterol is a major regulator of multiple types of ion channels. Although there is increasing information about cholesterol binding sites, the molecular mechanisms through which cholesterol binding alters channel function are virtually unknown. In this study, we used a combination of Martini coarse-grained simulations, a network theory-based analysis, and electrophysiology to determine the effect of cholesterol on the dynamic structure of the Kir2.2 channel. We found that increasing membrane cholesterol reduced the likelihood of contact between specific regions of the cytoplasmic and transmembrane domains of the channel, most prominently at the subunit-subunit interfaces of the cytosolic domains. This decrease in contact was mediated by pairwise interactions of specific residues and correlated to the stoichiometry of cholesterol binding events. The predictions of the model were tested by site-directed mutagenesis of two identified residues—V265 and H222—and high throughput electrophysiology.