Rabbit aortic smooth muscle cells take up lipid droplets when they are presented using an inverted culture technique. These droplets were localized in secondary lysosomes as demonstrated by staining for acid phosphatase. Initially, 69% of the cell volume was occupied by lipid, and 94% of the lipid was in lysosomes. After a 24-hr clearance period, the cell volume occupied by lipid decreased to 53%, although there was no change in the fraction of cell lipid that was in lysosomes. To confirm that hydrolysis of droplet lipid was occurring in lysosomes, cultures were exposed to medium containing Sandoz 58-035, an inhibitor of acyl CoA:cholesterol acyl transferase, for 24 hr in the presence and absence of chloroquine, ammonium chloride, or methylamine. Although the hydrolysis of cholesteryl oleate was sensitive to these lysosomotropic agents, the hydrolysis of triolein was not. Using reconstituted LDL containing cholesteryl oleate and triolein, we demonstrated that the hydrolyses of cholesteryl oleate and triolein were equally sensitive to the lysosomotropic agents when the cells were not loaded with droplet lipid. However, in cells loaded with lipid, hydrolysis of LDL cholesteryl ester was sensitive to the lysosomotropic agents but hydrolysis of triolein was not. We therefore conclude that both droplet lipids were hydrolyzed in lysosomes, and we attribute the failure of the lysosomotropic agents to inhibit fully the hydrolysis of droplet triolein to the presence of a large mass of free fatty acids in the lysosome that maintains a sufficiently low pH to sustain the triglyceridase activity, but not the cholesteryl esterase activity, of the lysosomal acid lipase.