Neutral lipid storage disease with ichthyosis (NLSDI; Chanarin-Dorfman syndrome) is an ichthyosiform syndrome, often associated with mutations in a lipid hydrolase, CGI-58. The presence of oil red O-positive, neutral lipid droplets in tissue biopsies, and/or in leukocytes on blood smears, coupled with a constellation of multisystem abnormalities and a pruritic ichthyosiform erythroderma, are together diagnostic of NLSDI. We investigated the pathogenesis of the ichthyosiform erythroderma in patients from three unrelated kindreds with a clinical diagnosis of NLSDI. Basal permeability barrier function and stratum corneum (SC) integrity were abnormal, but barrier recovery rates were faster than normal, as in atopic dermatitis. The basal barrier abnormality was linked to the secretion of lipid micro-inclusions, first segregated within lamellar bodies (LB), which then form a non-lamellar phase within the SC interstices, shown by combined ruthenium tetroxide post-fixation and lipid-retaining resin-white embedding. With colloidal lanthanum nitrate perfusion, excess water/solute movement was restricted to the SC interstices, and further localized to non-lamellar domains. Phase separation of excess stored lipid provides a unifying pathogenic mechanism not only for NLSDI, but also in several other inherited ichthyosiform disorders of lipid metabolism, such as recessive X-linked ichthyosis and type 2 Gaucher's disease.