Macrophage uptake of oxidatively modified LDL (Ox-LDL), unlike the uptake of acetylated LDL (Ac-LDL), resulted in lysosomal accumulation of unesterified cholesterol (UC). As sphingomyelin (SM) binds UC with high affinity, we considered whether lysosomes also accumulate Ox-LDL–derived SM, and if such a phenomenon could be involved in the lysosomal trapping of Ox-LDL–derived UC. Incubation of J-774 A.1 macrophages with Ox-LDL increased the lysosomal accumulations of UC by 75% and SM by 63% compared with the effect of Ac-LDL. The addition of chlorpromazine, an inhibitor of lysosomal sphingomyelinase (SMase), to macrophages that were incubated with [³H]cholesteryl ester–labeled Ac-LDL also led to lysosomal accumulation of both SM and UC. 7-Ketocholesterol (7-KC), the major oxysterol in Ox-LDL, inhibited lysosomal SMase in a cell-free system. The addition of 7-KC to cells in the presence of [³H]choline- or [³H]cholesteryl ester–labeled Ac-LDL led to macrophage accumulation of SM or UC, respectively. Niemann-Pick type C disease (NP-C) is an inherited cholesterol-storage disease in which lysosomal SMase activity is attenuated after uptake of LDL. Incubation of monocyte-derived macrophages from two NP-C patients with Ac-LDL or Ox-LDL resulted in an accumulation of UC in the lysosomes, whereas normal monocyte-derived macrophages accumulate UC in their lysosomes after incubation with Ox-LDL but not Ac-LDL. These results suggest that inhibition of lysosomal SMase in NP-C cells or by 7-KC is required for lysosomal accumulation of UC. Analysis of the macrophage lysosomal extract (following cell incubation with Ox-LDL) by density-gradient ultracentrifugation and gel-filtration chromatography revealed the presence of a particle consisting of UC, SM, 7-KC, and apoB-100. We conclude that 7-KC in Ox-LDL can inhibit lysosomal SMase, thus leading to the accumulation of SM, which binds UC avidly and inhibits its further cellular processing out of the lysosome. As UC-SM particles of lysosomal origin exist in the atherosclerotic lesion, the formation of such particles may result from an impaired processing of Ox-LDL by arterial wall macrophages during early atherogenesis.