The sterol binding agent 2-hydroxypropyl-beta-cyclodextrin is shown to be a convenient and useful experimental tool to probe intracellular pathways of cholesterol transport. Biochemical and cytochemical studies reveal that cyclodextrin specifically removes plasma membrane cholesterol. Depletion of plasma membrane sphingomyelin greatly accelerated cyclodextrin-mediated cholesterol removal. Cholesterol arriving at the plasma membrane from lysosomes and the endoplasmic reticulum was also removed by cyclodextrin. Cellular cholesterol esterification linked to the mobilization of cholesterol from lysosomes was strongly attenuated by cyclodextrin, suggesting that the major portion of endocytosed cholesterol is delivered from lysosomes to the endoplasmic reticulum via the plasma membrane. Evidence for translocation of lysosomal cholesterol to the endoplasmic reticulum by a plasma membrane-independent pathway is provided by the finding that cyclodextrin loses its ability to suppress esterification when plasma membrane sphingomyelin is depleted. The Golgi apparatus appears to play an active role in directing the relocation of lysosomal cholesterol to the plasma membrane since brefeldin A also abrogated cyclodextrin-mediated suppression of cholesterol esterification. Using cyclodextrin we further show that attenuated esterification of lysosomal cholesterol in Niemann-Pick C cells reflects defective translocation of cholesterol to the plasma membrane that may be linked to abnormal Golgi trafficking.