One of the hallmarks of Alzheimer's disease (AD) is the abnormal state of tau. It is both highly phosphorylated and aggregated into paired helical filaments (PHFs) in neurofibrillary tangles (NFTs). However, the mechanism underlying the hyperphosphorylation of tau in NFTs and neuronal degeneration in AD remains to be elucidated. The fact that hyperphosphorylation of tau in NFTs are also found in the patients with Niemann–Pick disease, type C (NPC), which is a cholesterol storage disease associated with defective intracellular trafficking of exogenous cholesterol, implies that perturbation of cholesterol metabolism may be involved in tau phosphorylation and neurodegeneration. Here, we report that cholesterol deficiency induced by inhibition of cholesterol biosynthesis in cultured neurons results in hyperphosphorylation of tau, accompanied by axonal degeneration associated with microtubule depolymerization. These changes were prevented by concurrent treatment with β-migrating very low-density lipoprotein (β-VLDL) or cholesterol. We propose that intracellular cholesterol plays an essential role in the modulation of tau phosphorylation and the maintenance of microtubule stability.