Niemann-Pick C1 (NPC1) is a key participant in cellular cholesterol trafficking. Loss of NPC1 function leads to defective suppression of SREBP-dependent gene expression and failure to appropriately activate liver X receptor–mediated (LXR-mediated) pathways, ultimately resulting in intracellular cholesterol accumulation. To determine whether NPC1 contributes to regulation of macrophage sterol homeostasis in vivo, we examined the effect of NPC1 deletion in BM-derived cells on atherosclerotic lesion development in the Ldlr−/− mouse model of atherosclerosis. High-fat diet–fed chimeric Npc1−/− mice reconstituted with Ldlr−/−Npc1−/− macrophages exhibited accelerated atherosclerosis despite lower serum cholesterol compared with mice reconstituted with wild-type macrophages. The discordance between the low serum lipoprotein levels and the presence of aortic atherosclerosis suggested that intrinsic alterations in macrophage sterol metabolism in the chimeric Npc1−/− mice played a greater role in atherosclerotic lesion formation than did serum lipoprotein levels. Macrophages from chimeric Npc1−/− mice showed decreased synthesis of 27-hydroxycholesterol (27-HC), an endogenous LXR ligand; decreased expression of LXR-regulated cholesterol transporters; and impaired cholesterol efflux. Lower 27-HC levels were associated with elevated cholesterol oxidation products in macrophages and plasma of chimeric Npc1−/− mice and with increased oxidative stress. Our results demonstrate that NPC1 serves an atheroprotective role in mice through regulation of LXR-dependent cholesterol efflux and mitigation of cholesterol-induced oxidative stress in macrophages.