Sterol accumulation in membranes blocks the exit of SCAP from the ER, preventing SREBP cleavage and reducing cholesterol synthesis. Sterols act through SCAP's sterol-sensing domain by an obscure mechanism. Here, we show that addition of cholesterol to ER membranes in vitro causes a conformational change in SCAP, detected by the unmasking of closely spaced trypsin cleavage sites. Two mutant forms of SCAP (Y298C and D443N) that are refractory to sterol regulation in vivo are also refractory to sterol-induced conformational change in vitro. 25-hydroxycholesterol, a potent regulator of SCAP in vivo, fails to change SCAP's conformation in vitro, suggesting that oxysterols act in intact cells by translocating cholesterol from plasma membrane to ER. These studies demonstrate an in vitro effect of cholesterol on the sterol regulatory machinery.