Oxidosqualene cyclase of the yeast encoded by the ERG7 gene converts oxidosqualene to lanosterol, the first cyclic component of sterol biosynthesis. In a previous study (Athenstaedt, K., Zweytick, D., Jandrositz, A, Kohlwein, S. D., and Daum, G. (1999) J. Bacteriol. 181, 6441-6448), Erg7p was identified as a component of yeast lipid particles. Here, we present evidence that Erg7p is almost exclusively associated with this compartment as shown by analysis of enzymatic activity, Western blot analysis, and in vivo localization of Erg7p-GFP. Occurrence of oxidosqualene cyclase in other organelles including the endoplasmic reticulum is negligible. In an erg7 deletion strain or in wild-type cells treated with an inhibitor of oxidosqualene cyclase, the substrate of Erg7p, oxidosqualene, accumulated mostly in lipid particles. Storage in lipid particles of this intermediate produced in excess may provide a possibility to exclude this membrane-perturbing component from other organelles. Thus, our data provide evidence that lipid particles are not only a depot for neutral lipids, but also participate in coordinate sterol metabolism and trafficking and serve as a storage site for compounds that may negatively affect membrane integrity.