Four members of the mammalian ATP binding cassette (ABC) transporter G subfamily are thought to be involved in transmembrane (TM) transport of sterols. The residues responsible for this transport are unknown. The mechanism of action of ABCG1 is controversial and it has been proposed to act at the plasma membrane to facilitate the efflux of cellular sterols to exogenous high-density lipoprotein (HDL). Here we show that ABCG1 function is dependent on localization to intracellular endosomes. Importantly, localization to the endosome pathway distinguishes ABCG1 and/or ABCG4 from all other mammalian members of this superfamily, including other sterol transporters. We have identified critical residues within the TM domains of ABCG1 that are both essential for sterol transport and conserved in some other members of the ABCG subfamily and/or the insulin-induced gene 2 (INSIG-2). Our conclusions are based on studies in which (i) biotinylation of peritoneal macrophages showed that endogenous ABCG1 is intracellular and undetectable at the cell surface, (ii) a chimeric protein containing the TM of ABCG1 and the cytoplasmic domains of the nonsterol transporter ABCG2 is both targeted to endosomes and functional, and (iii) ABCG1 colocalizes with multiple proteins that mark late endosomes and recycling endosomes. Mutagenesis studies identify critical residues in the TM domains that are important for ABCG1 to alter sterol efflux, induce sterol regulatory element binding protein-2 (SREBP-2) processing, and selectively attenuate the oxysterol-mediated repression of SREBP-2 processing. Our data demonstrate that ABCG1 is an intracellular sterol transporter that localizes to endocytic vesicles to facilitate the redistribution of specific intracellular sterols away from the endoplasmic reticulum (ER).