Cholesterol homeostasis in animal cells is achieved by regulated cleavage of membrane-bound transcription factors, designated SREBPs. Proteolytic release of the active domains of SREBPs from membranes requires a sterol-sensing protein, SCAP, which forms a complex with SREBPs. In sterol-depleted cells, SCAP escorts SREBPs from ER to Golgi, where SREBPs are cleaved by Site-1 protease (S1P). Sterols block this transport and abolish cleavage. Relocating active S1P from Golgi to ER by treating cells with brefeldin A or by fusing the ER retention signal KDEL to S1P obviates the SCAP requirement and renders cleavage insensitive to sterols. Transport-dependent proteolysis may be a common mechanism to regulate the processing of membrane proteins.