A handoff model has been proposed to explain the egress from lysosomes of cholesterol derived from receptor-mediated endocytosis of LDL. Cholesterol is first bound by soluble Niemann-Pick C2 (NPC2) protein, which hands off the cholesterol to the N-terminal domain of membrane-bound NPC1. Cells lacking NPC1 or NPC2 accumulate LDL-derived cholesterol in lysosomes and fail to deliver LDL cholesterol to the endoplasmic reticulum (ER) for esterification by acyl-CoA acyltransferase (ACAT) and for inhibition of sterol regulatory element-binding protein cleavage. Here, we support this model by showing that the cholesterol transport defect in NPC1 mutant cells is restricted to lysosomal export. Other cholesterol transport pathways appear normal, including the movement of cholesterol from the plasma membrane to the ER after treatment of cells with 25-hydroxycholesterol or sphingomyelinase. The NPC1 or NPC2 block in cholesterol delivery to the ER can be overcome by 2-hydroxypropyl-beta-cyclodextrin, which leads to a marked increase in ACAT-mediated cholesterol esterification. The buildup of cholesteryl esters in the cytosol is expected to be much less toxic than the buildup of free cholesterol in the lysosomes of patients with mutations in NPC1 or NPC2.