The discovery of the sterol carrier and lipid transfer proteins was largely a result of the findings that cells contained cytosolic factors which were required either for the microsomal synthesis of cholesterol or which could accelerate the transfer or exchange of phospholipids between membrane preparations. There are two sterol carrier proteins present in rat liver cytosol. Sterol carrier protein 1 (SCP1) (Mr 47 000) participates in the microsomal conversion of squalene to lanosterol, and sterol carrier protein 2 (SCP2) (Mr 13 500) participates in the microsomal conversion of lanosterol to cholesterol. In addition SCP2 also markedly stimulates the esterification of cholesterol by rat liver microsomes, as well as the conversion of cholesterol to 7 alpha-hydroxycholesterol - the major regulatory step in bile acid formation. Also, SCP2 is required for the intracellular transfer of cholesterol from adrenal cytoplasmic lipid inclusion droplets to mitochondria for steroid hormone production, as well as cholesterol transfer from the outer to the inner mitochondrial membrane. SCP2 is identical to the non-specific phospholipid exchange protein. While SCP2 is capable of phospholipid exchange between artificial donors/acceptors, e.g. liposomes and microsomes, it does not enhance the release of lipids other than unesterified cholesterol from natural donors/acceptors, e.g. adrenal lipid inclusion droplets, and will not enhance exchange of labeled phosphatidylcholine between lipid droplets and mitochondria. Careful comparison of SCP2 and fatty acid binding protein (FABP) using six different assay procedures demonstrates separate and distinct physiological functions for each protein, with SCP2 participating in reactions involving sterols and FABP participating in reactions involving fatty acid binding and/or transport. Furthermore, there is no overlap in substrate specificities, i.e. FABP does not possess sterol carrier protein activity and SCP2 does not specifically bind or transport fatty acid. The results described in the present review support the concept that intracellular lipid transfer is a highly specific process, far more substrate-specific than suggested by the earlier studies conducted using liposomal techniques.