Cholesterol metabolism has been investigated in a strain of BALB/C mice that carry an autosomal recessive mutation associated with decreased sphingomyelinase and glucocerebrosidase activity and storage of sphingomyelin and glucocerebroside as well as cholesterol in lysosomes (Pentchev, P. G., Gal, A. E., Boothe, A. D., Omodeo-Sale, F., Fouks, J., Neumeyer, B. A., Quirk, J. M., Dawson, G., and Brady, R. O. (1980) Biochim. Biophys. Acta 619, 669-679). When affected animals are placed on a diet high in cholesterol, they develop hepatomegaly associated with an extensive accumulation of unesterified cholesterol in the liver. Cultured skin fibroblasts derived from these mice also manifest a defect in cholesterol esterification although the uptake and intracellular location of exogenous cholesterol is comparable to that of controls. Microsomal fatty acyl-CoA:cholesterol acyltransferase activity was normal or elevated in extracts of tissues from the affected animals. Furthermore, the subcellular distribution and membrane orientation of acyl-CoA:cholesterol acyltransferase appeared normal in microsomal preparations isolated from affected mice. The blockage of esterification of exogenous cholesterol in the presence of normal transferase activity is suggestive of a defect in a component involved in the intracellular disposition of this sterol. The attenuation in tissue levels of sphingomyelinase and glucocerebrosidase and the accumulation of sphingolipids may reflect alterations in lysosomal function resulting from an imbalance of unesterified cholesterol in these organelles.