Antigen binding to the TCRalphabeta subunits transmits signals through the plasma membrane to induce phosphorylation of the CD3 cytoplasmic tails by incompletely understood mechanisms. The two crucial events are a conformational change in the CD3 subunits (CD3 conformational change) which allows CD3 phosphorylation and exclusion of phosphatases to prevent subsequent dephosphorylation. In the resting, inactive TCR this region is not exposed (resting TCR). Ligand binding stabilizes a CD3 conformation where this region is accessible (primed TCR). This CD3 conformational change is absolutely required for TCR triggering, as shown biochemically and genetically. Importantly, cholesterol bound to the TCRbeta transmembrane region keeps the unstimulated TCR in the resting, inactive conformation that cannot be phosphorylated by active kinases. Only TCRs that detach from cholesterol can spontaneously switch to the primed state and can receive phosphorylations. Indeed, by modulating cholesterol binding genetically or enzymatically, we can switch the TCR between the resting and primed states. The primed conformation is stabilized by binding to peptide-MHC ligands, which thus control TCR signaling. Collectively, these data are explained by a model of reciprocal allosteric regulation of TCR phosphorylation by cholesterol and ligand binding. Our results provide both a molecular mechanism and a conceptual framework for how lipid-receptor interactions regulate signal transduction.