Niemann-Pick Type C (NPC) disease is a devastating developmental disorder with progressive and fatal neurodegeneration. Previous work has shown that a single injection of the neurosteroid allopregnanolone at postnatal day 7 significantly prolonged lifespan of Npc1-/- mice. However, the cellular/molecular basis for this beneficial effect remains undefined. Here, we further characterized the effect of allopregnanolone treatment on cholesterol accumulation, a pathological hallmark of NPC, as well as on autophagic/lysosomal dysfunction, myelination and inflammation in Npc1-/- mouse brains. At 1 month postnatal, accumulation of filipin-labeled unesterified cholesterol was clearly evident not only in neurons but also in microglia in untreated mutant mice, but was mostly absent in allopregnanolone-treated animals. Brain levels of the lysosomal enzymes cathepsins B and D were significantly higher in Npc1-/- than in wild-type mice. Levels of LC3-II, an autophagy marker, were also increased in mutant mouse brain as compared to wild-type mouse brain. Both changes were significantly reduced by allopregnanolone treatment. Injection of the neurosteroid also significantly reduced astrocyte proliferation and microglial activation. Furthermore, allopregnanolone treatment significantly enhanced myelination in mutant mice. Taken together, our results clearly show that allopregnanolone treatment not only reduces cholesterol accumulation and improves autophagic/lysosomal function but also enhances myelination and reduces inflammation. These results provide further support for the potential usefulness of allopregnanolone for treating NPC disease.