These studies examine the effect of cholesterol feeding in normal rats and in rats with streptozotocin-induced diabetes mellitus. Four groups were studied: normal rats fed either a standard rat chow or a standard rat chow supplemented with cholesterol and diabetic rats fed standard chow or standard chow plus cholesterol. Diabetic rats fed a standard diet excreted more creatinine and urea in the urine, had higher levels of blood urea nitrogen, and lower serum albumin levels than rats fed standard diet plus cholesterol. Blood glucose levels were similar in the two groups; however, diabetic rats given cholesterol had a greater body weight at the end of the study than diabetic rats eating standard chow. Urine volumes and sodium and potassium excretion in the urine were greater in diabetic rats fed a standard diet than in those fed a high cholesterol diet. Diabetic rats fed a standard diet had distinctive renal lesions characterized by swelling of tubular epithelial cells with clearing of cytoplasm. The nephron segments involved by this striking vacuolar change were the distal convoluted tubule and the thick limbs of Henle's loop. These lesions were identical to those described by Armanni-Ebstein in severely glycosuric patients. These lesions were not observed in any of the animals of the other three groups (including diabetic rats fed a high cholesterol diet). Glomeruli were normal in animals of all groups. Thus, cholesterol administration prevents the development of the Armanni-Ebstein lesions in diabetic rats despite persistent hyperglycemia. The mechanism by which cholesterol administration prevents the accumulation of glycogen in distal tubule cells has not been elucidated. It is suggested that glycogen accumulation in distal tubular segments may explain the greater urine volumes, natriuresis, kaliuresis, and proteinuria observed in diabetic animals fed a standard diet when compared with rats fed the same diet plus cholesterol.