The hydrolysis of cholesteryl esters contained in plasma low density lipoprotein was reduced in cultured fibroblasts derived from a patient with cholesteryl ester storage disease, an inborn error of metabolism in which lysosomal acid lipase activity is deficient. While these mutant cells showed a normal ability to bind low density lipoprotein at its high affinity cell surface receptor site, to take up the bound lipoprotein through endocytosis, and to hydrolyze the protein component of the lipoprotein in lysosomes, their defective lysosomal hydrolysis of the cholesteryl ester component of the lipoprotein led to the accumulation within the cell of unhydrolyzed cholesteryl esters, the fatty acid distribution of which resembled that of plasma lipoprotein. When the cholesteryl ester storage disease cells were incubated with low density lipoprotein, the reduced rate of liberation of free cholesterol by these mutant cells was associated with a delay in the occurrence of two lipoprotein-mediated regulatory events, suppression of 3-hydroxy-3-methylglutaryl coenzyme A reductase activity, and activation of endogenous cholesteryl ester formation. In contrast to their defective hydrolysis of exogenously derived lipoprotein-bound cholesteryl esters, the choleseryl ester storage disease cells showed a normal rate of hydrolysis of cholesteryl esters that had been synthesized within the cell. These data lend support to the concept that in cultured human fibroblasts cholesteryl esters entering the cell bound to low density lipoprotein are hydrolyzed within the lysosome and that one of the functions of this intracellular organelle is to supply the cell with free cholesterol.