Cellular cholesterol plays vital physiological functions, and dysregulation in its homeostasis triggers aberrant inflammatory responses contributing to major human diseases such as atherosclerosis, obesity, and Alzheimer’s disease. The NLRP3 inflammasome, an intracellular multiprotein complex with key roles in inflammation, has been implicated in the pathogenesis of such diseases. For example, NLRP3 inflammasome is required for atherogenesis and is activated by cholesterol crystals generated during diet-induced atherosclerosis in mouse models. Mechanistically, this involved lysosomal rupture elicited by the physical properties of crystals, and ‘spill over’ of lysosomal cathepsins in the macrophage cytoplasm. However, whether cellular cholesterol homeostasis and compartmentalization regulates activation of the NLRP3 inflammasome remains unknown. Cholesterol is mainly acquired by cells through endocytosis of dietary low-density lipoproteins. Egress of cholesterol from the endolysosomal system and subsequent heterogeneous distribution to distinct cellular compartments is dependent on lysosomal membrane-localized cholesterol transporter NPC1. Excess cholesterol is toxic to cells; thus, cholesterol uptake and synthesis is counterbalanced by cholesterol efflux program driven primarily by ABC transporters. Here, by employing pharmacological and genetic approaches targeting NPC1 and ABCB1, I found that cellular cholesterol homeostasis is pivotal for the assembly and activation of NLRP3 inflammasome. Blocking NPC1, resulting in lysosomal cholesterol accumulation, blunted cleavage of pro-caspase-1 by the NLRP3 inflammasome and diminished secretion of effector cytokines IL-1β and IL-18, an effect that was found dependent on reduced cholesterol transport to the endoplasmic reticulum. By contrast, ABCB1 regulated NLRP3 production by modulating the upstream TLR/NF-kB signalling pathway through maintenance of cholesterol-rich membrane microdomains. Furthermore, Abcb1-/- cells exhibited enhanced nitric oxide production which further abated NLRP3 inflammasome activation. Understanding the way in which NLRP3 inflammasome activation is regulated by cholesterol pathways may help in the development of novel strategies to overcome its detrimental effect in chronic diseases.