We construct a coarse-grained (CG) model for dipalmitoylphosphatidylcholine (DPPC)/cholesterol bilayers and apply it to large-scale simulation studies of lipid membranes. Our CG model is a two-dimensional representation of the membrane, where the individual lipid and sterol molecules are described by pointlike particles. The effective intermolecular interactions used in the model are systematically derived from detailed atomic-scale molecular dynamics simulations using the Inverse Monte Carlo technique, which guarantees that the radial distribution properties of the CG model are consistent with those given by the corresponding atomistic system. We find that the coarse-grained model for the DPPC/cholesterol bilayer is substantially more efficient than atomistic models, providing a speedup of approximately eight orders of magnitude. The results are in favor of formation of cholesterol-rich and cholesterol-poor domains at intermediate cholesterol concentrations, in agreement with the experimental phase diagram of the system. We also explore the limits of the coarse-grained model, and discuss the general validity and applicability of the present approach. (C) 2004 American Institute of Physics.