Niemann-Pick disease type C (NPC) is an inherited lipid storage disorder caused by mutations in NPC1 or NPC2. NPC1 is a polytopic glycoprotein that contains a sterol-sensing domain, whereas NPC2 is a soluble protein that contains an MD-2-like lipid-recognition domain. In the current study, we addressed the hypothesis that ubiquitylation of NPC1 might be regulated by cholesterol. We found that depletion of cellular cholesterol facilitated ubiquitylation of NPC1 expressed in COS cells. A loss-of-function mutant, NPC1(P691S), which contains an amino acid substitution in the sterol-sensing domain, failed to respond to cholesterol depletion. Another mutant, NPC1(δLLNF), which lacks the endosomal-targeting motif, also failed to respond. SKD1(E235Q), a dominant-negative mutant of SKD1/Vps4 that inhibits disassembly of the endosomal sorting complex required for transport (ESCRT), caused an accumulation of ubiquitylated NPC1. SKD1(E235Q) associated with NPC1 on the endosomal membrane, whereas wild-type SKD1 associated with NPC1 only when cells were depleted of cholesterol. Similarly, in control human skin fibroblasts, cholesterol depletion facilitated ubiquitylation of endogenous NPC1. In patient cells that lack NPC2 function, NPC1 was ubiquitylated regardless of cellular cholesterol levels, suggesting that NPC2 is required to prevent NPC1 ubiquitylation under cholesterol-rich conditions. These results suggest that ubiquitylation of NPC1 and its association with the ESCRT complex are controlled by endosomal cholesterol levels utilizing a mechanism that involves NPC2.