Cholesterol is important for the formation of caveolea and deeply invaginated clathrin-coated pits. We have now investigated whether formation of macropinosomes is dependent on the presence of cholesterol in the plasma membrane. Macropinocytosis in A431 cells was induced by the phorbol ester 12-O-tetradecanoylphorbol 13-acetate, a potent activator of protein kinase C (PKC). When cells were pretreated with methyl-beta-cyclodextrin to extract cholesterol, the phorbol ester was unable to induce the increased endocytosis of ricin otherwise seen, although PKC could still be activated. Electron microscopy revealed that extraction of cholesterol inhibited the formation of membrane ruffles and macropinosomes at the plasma membrane. Furthermore, cholesterol depletion inhibited the phorbol ester-induced reorganization of filamentous actin at the cell periphery, a prerequisite for the formation of membrane ruffles that close into macropinosomes. Under normal conditions the small GTPase Rac1 is activated by the phorbol ester and subsequently localized to the plasma membrane, where it induces the reorganization of actin filaments required for formation of membrane ruffles. Cholesterol depletion did not inhibit the activation of Rac1. However, confocal microscopy showed that extraction of cholesterol prevented the phorbol ester-stimulated localization of Rac1 to the plasma membrane. Thus, our results demonstrate that cholesterol is required for the membrane localization of activated Rac1, actin reorganization, membrane ruffling and macropinocytosis.