The skin serves the vital function of providing a barrier between the hostile external environment and the host. While the skin has many important barrier functions, the two that are absolutely essential for survival are the barrier to the movement of water and electrolytes (permeability barrier) and the barrier against invasive and toxic microorganisms (antimicrobial barrier). Lipids play an essential role in the formation and maintenance of both the permeability and antimicrobial barriers. A hydrophobic extracellular lipid matrix in the stratum corneum composed primarily of ceramides, cholesterol, and free fatty acids provides the barrier to the movement of water and electrolytes. A variety of lipids, such as fatty alcohols, monoglycerides, sphingolipids, phospholipids, and in particular free fatty acids, have antimicrobial activity and contribute to the antimicrobial barrier. In addition to these essential functions, we will also review the ability of skin surface cholesterol to reflect alterations in systemic lipid metabolism and the risk of atherosclerosis.