Multidrug resistance (MDR) is a major obstacle in cancer therapy. It results from different mechanisms; among them is P-glycoprotein (P-gp)–mediated drug efflux out of cells. The mechanism of action remains elusive. The membrane lipid surrounding of P-gp, especially cholesterol, has been postulated to play an important role. To determine the effect of cholesterol depletion on P-gp, Madin Darby canine kidney (MDCK) cells, transfected with the mdr1 gene (MDR1-MDCK cells), were treated with methyl-β-cyclodextrin (MβCD). The localization and function of P-gp were analyzed using confocal laser scanning microscopy. Treatment with 100 mM MβCD did not affect viability but altered the structural appearance of the cells and abolished efflux of rhodamine 123, a P-gp substrate. The MβCD treatment released P-gp from intact cells into the supernatant and reduced the amount of P-gp in total membrane preparations. The P-gp was shifted from the raft fractions (1% Triton X-100, 4° C) to higher density fractions in MβCD-treated cells. The amount of cholesterol was significantly decreased in the raft fractions. Treatment of cells with 1-phenyl-2-decanoylamino-3-morpholino-1-propanol, a glucosylceramide synthase inhibitor, also led to a shift of P-gp to higher density fractions. These results show that removal of cholesterol modulates the membrane lipid composition, changes the localization of P-gp, and results in loss of P-gp function.