In Saccharomyces cerevisiae, the 3-keto reductase (Erg27p) encoded by ERG27 gene is one of the key enzymes involved in the C-4 demethylation of the sterol intermediate, 4,4-dimethylzymosterol. The oxidosqualene cyclase (Erg7p) encoded by the ERG7 gene converts oxidosqualene to lanosterol, the first cyclic component of sterol biosynthesis. In a previous study, we found that erg27 strains grown on cholesterol- or ergosterol-supplemented media did not accumulate lanosterol or 3-ketosterols but rather squalene, oxidosqualene, and dioxidosqualene intermediates normally observed in ERG7 (oxidosqualene cyclase) mutants. These results suggested a possible interaction between these two enzymes. In this study, we present evidence that Erg27p interacts with Erg7p, facilitating the association of Erg7p with lipid particles (LPs) and preventing digestion of Erg7p both in the endoplasmic reticulum (ER) and LPs. We demonstrate that Erg27p is required for oxidosqualene cyclase (Erg7p) activity in LPs, and that Erg27p co-immunoprecipitates with Erg7p in LPs but not in microsomal fractions. While Erg27p is essentially a component of the ER, it can also be detected in LPs. In erg27 strains, a truncated Erg7p mislocalizes to microsomes. Restoration of Erg7p enzyme activity and LPs localization was achieved in an erg27 strain transformed with a plasmid containing a wild-type ERG27 allele. We suggest that the physical interaction of Erg27p with Erg7p is an essential regulatory tool in yeast sterol biosynthesis.