The recycling component (retrosome) of the endocytic pathway was evaluated as a potential vehicle for the recycling of lipoprotein-derived cholesterol and the maintenance of a high concentration of free cholesterol in plasma membranes. Receptor-to-ligand ratios were established in three distinct endosomal compartments using a recycling receptor (apolipoprotein B/E) to confirm isolated retrosomes as recycling vesicles. Compositional studies showed that retrosomes have twice the free cholesterol in their limiting membranes as do the endosomal compartments from which they derive. Furthermore, of the three isolated endosomal fractions, retrosomes showed the highest ratio of free to esterified cholesterol derived from injected very low density lipoprotein as well as the highest free-to-esterified cholesterol mass ratio overall, confirming endosomal cholesteryl ester hydrolysis and sorting. Endosomal neutral cholesterol esterase was identified by immunoblot, whereas electron microscopy employing membrane cholesterol-specific filipin revealed a high concentration of cholesterol in appendages that appear to be the formative stage of retrosomal biogenesis.