Cholesterol is an important structural component of membranes as well as a precursor for steroid hormone, bile acid and regulatory oxysterol biosynthesis. Recent observations revealed that cholesterol plays an important role in signaling and the regulation of intracellular vesicular trafficking. Studies on Niemann-Pick type C disease, a fatal neuro-visceral cholesterol storage disorder, led to the elucidation of a sterol-modulated vesicular trafficking pathway. Mutations in the NPC1 gene, which cause the majority of cases of Niemann-Pick type C disease, result in the accumulation of free cholesterol in lysosomes and associated defects in glycolipid sorting. NPC1 has a sterol-sensing domain that presumably recognizes free sterols in the protein's environment and participates in the movement of cholesterol out of lysosomes. The compartment containing NPC1 is a subset of late endosomes; it is highly mobile, travels along microtubules, emitting flexible tubules. The movements of this compartment require an intact NPC1 sterol-sensing domain and are dramatically suppressed when free cholesterol accumulates in the late endosomes. Two other proteins involved in sterol trafficking enter into the NPC1 compartment, NPC2 also known as HE1, a secreted sterol-binding glycoprotein, and MLN64, a StAR-related lipid transfer (START) domain protein, which can bind cholesterol and promote its movement from donor to acceptor membranes. Mutations in NPC2 cause a rarer form of Niemann-Pick type C disease, establishing its importance in intracellular sterol movement. NPC2, NPC1 and MLN64 may act in an ordered sequence to sense cholesterol, effect sterol movement, and consequently, influence the process of vesicular trafficking.