Niemann-Pick disease type C (NPC) is caused by defects in either the NPC1 or NPC2 gene and is characterized by accumulation of cholesterol and glycolipids in the late endosome/lysosome compartment. NPC2 is an intralysosomal protein that binds cholesterol in vitro. Previous studies demonstrated rapid rates of cholesterol transfer from NPC2 to model membranes [Cheruku, S. R., et al. (2006) J. Biol. Chem. 281, 31594–31604]. To model the potential role of NPC2 as a lysosomal cholesterol export protein, in this study we used fluorescence spectroscopic approaches to examine cholesterol transfer from membranes to NPC2, assessing the rate, mechanism, and regulation of this transport step. In addition, we examined the effect of NPC2 on the rate and kinetic mechanism of intermembrane sterol transport, to model the movement of cholesterol from internal lysosomal membranes to the limiting lysosomal membrane. The results support the hypothesis that NPC2 plays an important role in endo/lysosomal cholesterol trafficking by markedly accelerating the rates of cholesterol transport. Rates of sterol transfer from and between membranes were increased by as much as 2 orders of magnitude by NPC2. The transfer studies indicate that the mechanism of NPC2 action involves direct interaction of the protein with membranes. Such interactions were observed directly using FTIR spectroscopy and protein tryptophan spectral shifts. Additionally, cholesterol transfer by NPC2 was found to be greatly enhanced by the unique lysosomal phospholipid lyso-bisphosphatidic acid (LBPA), suggesting an important role for LBPA in NPC2-mediated cholesterol trafficking.