Cholesterol efflux from macrophage foam cells, a key step in reverse cholesterol transport, requires trafficking of cholesterol from intracellular sites to the plasma membrane. Sphingomyelin is a cholesterol-binding molecule that transiently exists with cholesterol in endosomes and lysosomes but is rapidly hydrolyzed by lysosomal sphingomyelinase (L-SMase), a product of the acid sphingomyelinase (ASM) gene. We therefore hypothesized that sphingomyelin hydrolysis by L-SMase enables cholesterol efflux by preventing cholesterol sequestration by sphingomyelin. Macrophages from wild-type and ASM knockout mice were incubated with [(3)H]cholesteryl ester-labeled acetyl-LDL and then exposed to apolipoprotein A-I or high density lipoprotein. In both cases, [(3)H]cholesterol efflux was decreased substantially in the ASM knockout macrophages. Similar results were shown for ASM knockout macrophages labeled long-term with [(3)H]cholesterol added directly to medium, but not for those labeled for a short period, suggesting defective efflux from intracellular stores but not from the plasma membrane. Cholesterol trafficking to acyl-coenzyme A:cholesterol acyltransferase (ACAT) was also defective in ASM knockout macrophages. Using filipin to probe cholesterol in macrophages incubated with acetyl-LDL, we found there was modest staining in the plasma membrane of wild-type macrophages but bright, perinuclear fluorescence in ASM knockout macrophages. Last, when wild-type macrophages were incubated with excess sphingomyelin to "saturate" L-SMase, [(3)H]cholesterol efflux was decreased. Thus, sphingomyelin accumulation due to L-SMase deficiency leads to defective cholesterol trafficking and efflux, which we propose is due to sequestration of cholesterol by sphingomyelin and possibly other mechanisms. This model may explain the low plasma high density lipoprotein found in ASM-deficient humans and may implicate L-SMase deficiency and/or sphingomyelin enrichment of lipoproteins as novel atherosclerosis risk factors.