Many biologically important macromolecules are internalized into cells by clathrin-coated pit endocytosis. The mechanism of clathrin-coated pit budding has been investigated intensively, and considerable progress has been made in characterizing the proteins involved in internalization. Membrane lipid composition and the lateral organization of lipids and proteins within membranes are believed to play an important role in the regulation of membrane-trafficking processes. Here we report that membrane cholesterol plays a critical role in clathrin-coated pit internalization. We show that acute cholesterol depletion, using beta-methyl-cyclodextrin, specifically reduces the rate of internalization of transferrin receptor by more than 85%, without affecting intracellular receptor trafficking back to the cell surface. The effect on endocytosis is attributable to a failure of coated pits to detach from the plasma membrane, as visualized by using a green fluorescent protein-clathrin conjugate in living cells. Ultrastructural studies indicate that acute cholesterol depletion causes accumulation of flat-coated membranes and a corresponding decrease in deep-coated pits, consistent with the possibility that flat clathrin lattices are direct precursors of indented pits and endocytic vesicles in intact cells. We conclude that clathrin is unable to induce curvature in the membrane depleted of cholesterol.