Phagocytosis of cholesterol-containing particles resulted in the formation of an intralysosomal cholesterol compartment. Cholesterol was excreted out of the macrophage with a single exponential rate which depended on the concentration of acceptor lipoproteins in the medium. Exchange kinetics performed on cells which had ingested particulate cholesterol suggested that excretion occurred by the same mechanism as exchange. Cholesterol esters as particulate albumin coacervates were taken up by macrophages and hydrolyzed by a lysosomal cholesterol esterase with optimal activity at pH 4.0. Cholesteryl linoleate was hydrolyzed much more readily than cholesteryl palmitate. The amount of cholesterol esterase and its specific activity increased during the in vitro cultivation of macrophages. Intralysosomally, cholesteryl linoleate and palmitate were hydrolyzed to free cholesterol which was excreted from the macrophage and recovered in the medium. Since cholesteryl linoleate was hydrolyzed more rapidly than free cholesterol was excreted into the medium, free cholesterol accumulated intralysosomally. Cholesteryl palmitate was hydrolyzed more slowly, and the rate of hydrolysis was limiting for excretion of the free cholesterol from within the lysosome.