The separation of pleural effusions into transudates and exudates is the first task the physician must solve in evaluating a pleural effusion for management. Many criteria have been established, but without a definite efficacy of any of them. Cholesterol is an easy, effective, relatively cheap determination to differentiate transudates from exudates. In our prospective study of 40 patients, cholesterol best separated transudates from exudates. A pleural fluid cholesterol value of 60 mg/dl or above has sensitivity, specificity, PPV, NPV and efficacy of 100%, 93%, 96%, 92%, and 95.5% respectively. Pleural fluid to serum cholesterol ratio of 0.3 or higher has sensitivity, specificity, PPV, NPV and efficacy of 96%, 93%, 96%, 92%, and 95% respectively. P. CHOL and P/S CHOL ratio has a misclassification rate of 2.5% each. When both were combined all cases are clearly separated into transudates and exudates.