Amyloidosis is a biological event in which proteins undergo structural transitions from soluble monomers and oligomers to insoluble fibrillar aggregates that are often toxic to cells. Exactly how amyloid proteins, such as the pancreatic hormone amylin, aggregate and kill cells is still unclear. Islet amyloid polypeptide, or amylin, is a recently discovered hormone that is stored and co-released with insulin from pancreatic islet β-cells. The pathology of type 2 diabetes mellitus (T2DM) is characterized by an excessive extracellular and intracellular accumulation of toxic amylin species, soluble oligomers and insoluble fibrils, in islets, eventually leading to β-cell loss. Obesity and elevated serum cholesterol levels are additional risk factors implicated in the development of T2DM. Because the homeostatic balance between cholesterol synthesis and uptake is lost in diabetics, and amylin aggregation is a hallmark of T2DM, this chapter focuses on the biophysical and cell biology studies exploring molecular mechanisms by which cholesterol and phospholipids modulate secondary structure, folding and aggregation of human amylin and other amyloid proteins on membranes and in cells. Amylin turnover and toxicity in pancreatic cells and the regulatory role of cholesterol in these processes are also discussed.