Niemann-Pick type C (NPC) disease is an inherited lipid storage disorder that affects the viscera and central nervous system. A characteristic feature of NPC cells is the lysosomal accumulation of low density lipoprotein-derived cholesterol. To elucidate important structural features of the recently identified NPC1 gene product defective in NPC disease, we examined the ability of wild-type NPC1 and NPC1 mutants to correct the excessive lysosomal storage of low density lipoprotein-derived cholesterol in a model cell line displaying the NPC cholesterol-trafficking defect (CT60 Chinese hamster ovary cells). CT60 cells transfected with human wild-type NPC1 contained immunoreactive proteins of 170 and 190 kDa localized to the lysosomal/endosomal compartment. Wild-type NPC1 protein corrected the NPC cholesterol-trafficking defect in the CT60 cells. Mutation of conserved cysteine residues in the NPC1 N terminus to serine residues resulted in proteins targeted to lysosomal membranes encircling cholesterol-laden cores, whereas deletion of the C-terminal 4-aa residues containing the LLNF lysosome-targeting motif resulted in the expression of protein localized to the endoplasmic reticulum. None of these mutant NPC1 proteins corrected the NPC cholesterol-trafficking defect in CT60 cells. We conclude that transport of the NPC1 protein to the cholesterol-laden lysosomal compartment is essential for expression of its biological activity and that domains in the N terminus of the NPC1 protein are critical for mobilization of cholesterol from lysosomes.