Niemann-Pick C1-like 1 (NPC1L1) is a multitransmembrane protein playing a crucial role in dietary and biliary cholesterol absorption. Cholesterol promotes the formation and endocytosis of NPC1L1-flotillin-cholesterol membrane microdomains, which is an early step in cholesterol uptake. How cholesterol is sensed in this step is unknown. Here, we find that the N-terminal domain (NTD) of NPC1L1 binds cholesterol. Mutation of residue Leu-216 in NPC1L1-NTD eliminates cholesterol binding, decreases the formation of NPC1L1-flotillin-cholesterol membrane microdomains, and prevents NPC1L1-mediated cholesterol uptake in culture cells and mice livers. NPC1L1-NTD specifically binds cholesterol but not plant sterols, which may account for the selective cholesterol absorption in intestine. Furthermore, 25-or 27-hydroxycholesterol competes with cholesterol to bind NPC1L1-NTD and inhibits the cholesterol induced endocytosis of NPC1L1. Together, these results demonstrate that plasma membrane-localized NPC1L1 binds exogenous cholesterol via its NTD, and facilitates the formation of NPC1L1-flotillin-cholesterol membrane microdomains that are then internalized into cells through the clathrin-AP2 pathway. Our study uncovers the mechanism of cholesterol sensing by NPC1L1 and proposes a mechanism for selective cholesterol absorption.NPC1L1 is a multiple transmembrane protein that is essential for dietary cholesterol absorption and biliary cholesterol reabsorption (1-3). Our previous studies have revealed that NPC1L1 can move between the endocytic recycling compartment (ERC) 4 and plasma membrane (PM) (4). Cholesterol depletion induces the export of NPC1L1 from ERC to PM in a myosin Vb-rab11a-rab11-FIP2-dependent manner (5, 6). Reversely, cholesterol replenishment promotes the formation of cholesterol-enriched membrane microdomains containing NPC1L1 and flotillins, named NPC1L1-flotillin-cholesterol membrane microdomains (7). These microdomains are in turn internalized through clathrin-AP2-mediated endocytosis and, therefore, lead to the internalization of NPC1L1 and ensure the efficient cholesterol uptake (7). It's still a mystery how cholesterol is sensed to initiate the formation and endocytosis of NPC1L1-flotillin-cholesterol membrane microdomains. Niemann-Pick C (NPC) 1 is a homologue of NPC1L1 (8, 9). NPC1 and another protein, NPC2, are required for transporting the LDL-derived cholesterol out of late endosomes/lysosomes (10). Mutation of the npc1 or npc2 genes leads to the Niemann-Pick Type C disease, a fatal hereditary disorder characterized by accumulation of cholesterol in late endosomes/ lysosomes (9, 11). NPC1 and NPC1L1 show the similar protein topology. Both of them have 13 transmembrane helices containing a sterol-sensing domain, a large luminal N-terminal domain (NTD), and two large luminal loops (12, 13). Recently, it has been shown that the NTD of NPC1 directly binds cholesterol (14). The crystal structure of the cholesterol-bound NPC1-NTD reveals that the cholesterol molecule is embedded in the binding pocket with an ...