Most cell types acquire cholesterol by endocytosis of circulating low density lipoprotein, but little is known about the mechanisms of intra-endosomal cholesterol transport and about the primary cause of its aberrant accumulation in the cholesterol storage disorder Niemann-Pick type C (NPC). Here we report that lysobisphosphatidic acid (LBPA), an unconventional phospholipid that is only detected in late endosomes, regulates endosomal cholesterol levels under the control of Alix/AlP1, which is an LBPA-interacting protein involved in sorting into multivesicular endosomes. We find that Alix down-expression decreases both LBPA levels and the lumenal vesicle content of late endosomes. Cellular cholesterol levels are also decreased, presumably because the storage capacity of endosomes is affected and thus cholesterol clearance accelerated. Both lumenal membranes and cholesterol can be restored in Alix knockdown cells by exogenously added LBPA. Conversely, we also find that LBPA becomes limiting upon pathological cholesterol accumulation in NPC cells, because the addition of exogenous LBPA, but not of LBPA isoforms or analogues, partially reverts the NPC phenotype. We conclude that LBPA controls the cholesterol capacity of endosomes.