Sterols and hopanoids are chemically and structurally related lipids mostly found in eukaryotic and bacterial cell membranes. Few bacterial species have been reported to produce sterols and this anomaly had originally been ascribed to lateral gene transfer (LGT) from eukaryotes. In addition, the functions of sterols in these bacteria are unknown and the functional overlap between sterols and hopanoids is still unclear. Gemmata obscuriglobus is a bacterium from the Planctomycetes phylum that synthesizes sterols, in contrast to its hopanoid-producing relatives. Here we show that sterols are essential for growth of G. obscuriglobus, and that sterol depletion leads to aberrant membrane structures and defects in budding cell division. This report of sterol essentiality in a prokaryotic species advances our understanding of sterol distribution and function, and provides a foundation to pursue fundamental questions in evolutionary cell biology.