Most adaptive immune responses require the activation of specific T cells through the T cell antigen receptor (TCR)–CD3 complex. Here we show that cholesterol sulfate (CS), a naturally occurring analog of cholesterol, inhibits CD3 ITAM phosphorylation, a crucial first step in T cell activation. In biochemical studies, CS disrupted TCR multimers, apparently by displacing cholesterol, which is known to bind TCRβ. Moreover, CS-deficient mice showed heightened sensitivity to a self-antigen, whereas increasing CS content by intrathymic injection inhibited thymic selection, indicating that this molecule is an intrinsic regulator of thymocyte development. These results reveal a regulatory role for CS in TCR signaling and thymic selection, highlighting the importance of the membrane microenvironment in modulating cell surface receptor activation.