Background: Categorization of pleural effusion into exudates and transudates is crucial for diagnosis and management. Light's criteria are the most commonly used method but has its own pitfalls. Objective: The objective is to study diagnostic value of pleural fluid cholesterol (pfCHOL) in differentiating transudative from exudative pleural effusions. Patients and Methods: A total of 101 subjects presenting with pleural effusion in the outpatient and emergency departments of a tertiary hospital were enrolled in the observational study. Pleural fluid protein, lactate dehydrogenase, adenosine deaminase, and pfCHOL were analyzed from pleural fluid samples obtained by diagnostic thoracocentesis. Pleural fluid was classified into transudates and exudates based on the etiology (gold standard) against which Light's criteria and pfCHOL values were compared with appropriate statistical methods. Results: 74.26% were males. 46.53% were transudates as per the etiological diagnosis. According to the Light's criteria, 45.54% were transudates. With pfCHOL cut-off value of 1.16 mmol/L or 45 mg/dL, 44.55% were transudates. The transudates and exudates had a mean cholesterol level of 27.8 ± 7.84 mg/dl and 70.76 ± 22.35 mg/dL, respectively. A pfCHOL level of 45 mg/dl correctly identified 97.78% as transudates and 96.43% as exudates. Receiver operating characteristic analysis of pfCHol with a cut-off of 45 mg/dl showed a sensitivity (98.18%), specificity (95.65%) (P < 0.0001), area under curve 0.969, positive predictive value and negative predictive value of 96.4% and 97.8%, respectively. Conclusion: pfCHOL is a less complex, cost-effective, reliable diagnostic marker and is as good as the Light's criteria to differentiate transudates and exudates.