The mechanisms of hydrolysis and accumulation of cholesteryl oleate-lipid droplets prepared in vitro were studied in acid cholesteryl-esterase-deficient fibroblasts (GM00863, GM03111). Acid cholesteryl esterase activity was reduced in both GM00863 and GM03111 (8.9% and 17.4% of the normal level, respectively), while neutral cholesteryl esterase activity was highly stimulated in GM03111. The hydrolysis of [14C]-cholesteryl oleate-lipid droplets in GM00863 was almost as efficient as in normal cells, while that in GM03111 was highly stimulated. When viewed by polarized microscopy the lipid droplets which had accumulated in the mutant cells showed anisotropic liquid crystalline structures. As in normal cells, some of these lipid droplets were observed by transmission electron microscopy as membrane-free lipid inclusion bodies in the cytoplasm. These results suggest that lipid droplets internalized into phagolysosomes of these mutant cells transferred to the cytoplasm, and were hydrolyzed there probably by neutral cholesteryl esterase.