Mouse peritoneal macrophages can be induced to accumulate cholesteryl esters by incubating them in the presence of acetylated low density lipoprotein. The cholesteryl esters are sequestered in neutral lipid droplets that remain in the cell even when the acetylated low density lipoprotein is removed from the culture media. Previous biochemical studies have determined that the cholesterol component of cholesteryl ester droplets constantly turns over with a half time of 24 h by a cyclic process of de-esterification and re-esterification. We have used morphologic techniques to determine the spatial relationship of cholesteryl ester, free cholesterol, and lipase activity during normal turnover and when turnover is disrupted. Lipid droplets were surrounded by numerous 7.5-10.0-nm filaments; moreover, at focal sites on the margin of each droplet there were whorles of concentrically arranged membrane that penetrated the matrix. Histochemically detectable lipase activity was associated with these stacks of membrane. Using filipin as a light and electron microscopic probe for free cholesterol, we determined that a pool of free cholesterol was associated with each lipid droplet. Following incubation in the presence of the exogenous cholesterol acceptor, high density lipoprotein, the cholesteryl ester droplets disappeared and were replaced with lipid droplets of a different lipid composition. Inhibition of cholesterol esterification caused cholesteryl ester droplets to disappear and free cholesterol to accumulate in numerous myelin-like structures in the body of the cell.