Sterol-induced binding to Insigs in the endoplasmic reticulum (ER) allows for ubiquitination of 3-hydroxy-3-methylglutaryl coenzyme A reductase, the rate-limiting enzyme in cholesterol synthesis. This ubiquitination marks reductase for recognition by the ATPase VCP/p97, which mediates extraction and delivery of reductase from ER membranes to cytosolic 26 S proteasomes for degradation. Here, we report that reductase becomes dislocated from ER membranes into the cytosol of sterol-treated cells. This dislocation exhibits an absolute requirement for the actions of Insigs and VCP/p97. Reductase also appears in a buoyant fraction of sterol-treated cells that co-purifies with lipid droplets, cytosolic organelles traditionally regarded as storage depots for neutral lipids such as triglycerides and cholesteryl esters. Genetic, biochemical, and localization studies suggest a model in which reductase is dislodged into the cytosol from an ER subdomain closely associated with lipid droplets.