Lipid movement between organelles is a critical component of eukaryotic membrane homeostasis. Niemann Pick type C (NP-C) disease is a fatal neurodegenerative disorder typified by lysosomal accumulation of cholesterol and sphingolipids. Expression of yeast NP-C-related gene 1 (NCR1), the orthologue of the human NP-C gene 1 (NPC1) defective in the disease, in Chinese hamster ovary NPC1 mutant cells suppressed lipid accumulation. Deletion of NCR1, encoding a transmembrane glycoprotein predominantly residing in the vacuole of normal yeast, gave no phenotype. However, a dominant mutation in the putative sterol-sensing domain of Ncr1p conferred temperature and polyene antibiotic sensitivity without changes in sterol metabolism. Instead, the mutant cells were resistant to inhibitors of sphingolipid biosynthesis and super sensitive to sphingosine and C2-ceramide. Moreover, plasma membrane sphingolipids accumulated and redistributed to the vacuole and other subcellular membranes of the mutant cells. We propose that the primordial function of these proteins is to recycle sphingolipids and that defects in this process in higher eukaryotes secondarily result in cholesterol accumulation.