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The cholesteric (or chiral nematic) liquid crystal phase is typically composed of nematic mesogenic molecules containing a chiral center which produces intermolecular forces that favor alignment between molecules at a slight angle to one another. This leads to the formation of a structure which can be visualized as a stack of very thin 2-D nematic-like layers with the director in each layer twisted with respect to those above and below. In this structure, the directors actually form in a continuous helical pattern about the layer normal. The black arrow in the animation represents director orientation in the succession of layers along the stack.

The molecules shown are merely representations of the many chiral nematic mesogens lying in the slabs of infinitesimal thickness with a distribution of orientation around the director. This is not to be confused with the planar arrangement found in smectic mesophases.

An important characteristic of the cholesteric mesophase is the pitch. The pitch, p, is defined as the distance it takes for the director to rotate one full turn in the helix as illustrated in the above animation. A byproduct of the helical structure of the chiral nematic phase, is its ability to selectively reflect light of wavelengths equal to the pitch length, so that a color will be reflected when the pitch is equal to the corresponding wavelength of light in the visible spectrum. The effect is based on the temperature dependence of the gradual change in director orientation between successive layers, which modifies the pitch length resulting in an alteration of the wavelength of reflected light according to the temperature. The angle at which the director changes can be made larger, and thus tighten the pitch, by increasing the temperature of the molecules, hence giving them more thermal energy. Similarly, decreasing the temperature of the molecules increases the pitch length of the chiral nematic liquid crystal. This makes it possible to build a liquid crystal thermometer that displays the temperature of its environment by the reflected color. Mixtures of various types of these liquid crystals are often used to create sensors with a wide variety of responses to temperature change. Such sensors are used for thermometers often in the form of heat sensitive films to detect flaws in circuit board connections, fluid flow patterns, condition of batteries, the presence of radiation, or in novelties such as "mood" rings.

In the fabrication of films, since putting chiral nematic liquid crystals directly on a black background would lead to degradation and perhaps contamination, the crystals are micro-encapsulated into particles of very small dimensions. The particles are then treated with a binding material that will contract upon curing so as to flatten the  microcapsules and produce the best alignment for brighter colors. An application of a class of chiral nematic liquid crystals which are less temperature sensitive is to create materials such as clothing, dolls, inks and paints.

The wavelength of the reflected light can also be controlled by adjusting the chemical composition, since cholesterics can either consist of exclusively chiral molecules or of nematic molecules with a chiral dopant dispersed throughout. In this case, the dopant concentration is used to adjust the chirality and thus the pitch.