At low mole fractions, cholesterol segregates into 10- to 100-nm-diameter nanodomains dispersed throughout primarily dipalmitoylphosphatidylcholine (DPPC) domains in mixed DPPC:cholesterol monolayers. The nanodomains consist of 6:1 DPPC:cholesterol "complexes" that decorate and lengthen DPPC domain boundaries, consistent with a reduced line tension, λ. The surface viscosity of the monolayer, ηs, decreases exponentially with the area fraction of the nanodomains at fixed surface pressure over the 0.1- to 10-Hz range of frequencies common to respiration. At fixed cholesterol fraction, the surface viscosity increases exponentially with surface pressure in similar ways for all cholesterol fractions. This increase can be explained with a free-area model that relates ηs to the pure DPPC monolayer compressibility and collapse pressure. The elastic modulus, G', initially decreases with cholesterol fraction, consistent with the decrease in λ expected from the line-active nanodomains, in analogy to 3D emulsions. However, increasing cholesterol further causes a sharp increase in G' between 4 and 5 mol% cholesterol owing to an evolution in the domain morphology, so that the monolayer is elastic rather than viscous over 0.1-10 Hz. Understanding the effects of small mole fractions of cholesterol should help resolve the controversial role cholesterol plays in human lung surfactants and may give clues as to how cholesterol influences raft formation in cell membranes.