Neutral cholesterol ester hydrolase (NCEH) accounts for a large part of the nCEH activity in macrophage foam cells, a hallmark of atherosclerosis, but its subcellular localization and structure-function relationship are unknown. Here, we determined subcellular localization, glycosylation, and nCEH activity of a series of NCEH mutants expressed in macrophages. NCEH is a single-membrane-spanning type II membrane protein comprising three domains: N-terminal, catalytic, and lipid-binding domains. The N-terminal domain serves as a type II signal anchor sequence to recruit NCEH to the endoplasmic reticulum (ER) with its catalytic domain within the lumen. All of the putative N-linked glycosylation sites (Asn(270), Asn(367), and Asn(389)) of NCEH are glycosylated. Glycosylation at Asn(270), which is located closest to the catalytic serine motif, is important for the enzymatic activity. Cholesterol loading by incubation with acetyl-LDL does not change the ER localization of NCEH. In conclusion, NCEH is targeted to the ER of macrophages, where it hydrolyzes CE to deliver cholesterol for efflux out of the cells.