Recent discoveries in the regulation of cholesterol metabolism have documented a two step proteolytic pathway that regulates nuclear targeting of the sterol regulatory element binding proteins. Sterol regulatory element binding protein cleavage activating protein is a newly identified protein that modulates the proteolytic maturation of the sterol regulatory element binding proteins. It contains a domain that is quite similar in sequence to the membrane spanning region of the rate controlling enzyme of cholesterol biosynthesis, 3‐hydroxy‐3‐methylglutaryl coenzyme A reductase. The membrane domain of the reductase is involved in its post‐translational regulation by cholesterol. The molecular defect in the intracellular cholesterol storage disease, Niemann–Pick type C, has also recently been identified. Surprisingly, the affected gene encodes a protein with similarity to the membrane domains that are conserved in 3‐hydroxy‐3‐methylglutaryl reductase and sterol regulatory element binding protein cleavage activating protein. Furthermore, the cell surface receptor for the sterol modified hedgehog morphogen, Patched, also contains a membrane domain with significant similarity to this putative sterol monitoring domain. These recent developments suggest a common mechanism for sensing intracellular sterol levels and cell signaling, which is based on the function of related membrane domains that are contained in key regulatory proteins. Curr Opin Lipidol 9:137–140. © 1998 Rapid Science Ltd