NPC2 is a small lysosomal glycoprotein that binds cholesterol with submicromolar affinity. Deficiency in NPC2 is the cause of Niemann-Pick type C2 disease, a fatal neurovisceral disorder characterized by accumulation of cholesterol in lysosomes. Here we report the crystal structure of bovine NPC2 bound to cholesterol-3-O-sulfate, an analog that binds with greater apparent affinity than cholesterol. Structures of both apo-bound and sterol-bound NPC2 were observed within the same crystal lattice, with an asymmetric unit containing one molecule of apoNPC2 and two molecules of sterol-bound NPC2. As predicted from a previously determined structure of apoNPC2, the sterol binds in a deep hydrophobic pocket sandwiched between the two beta-sheets of NPC2, with only the sulfate substituent of the ligand exposed to solvent. In the two available structures of apoNPC2, the incipient ligand-binding pocket, which ranges from a loosely packed hydrophobic core to a small tunnel, is too small to accommodate cholesterol. In the presence of sterol, the pocket expands, facilitated by a slight separation of the beta-strands and substantial reorientation of some side chains, resulting in a perfect molding of the pocket around the hydrocarbon portion of cholesterol. A notable feature is the repositioning of two aromatic residues at the tunnel entrance that are essential for NPC2 function. The NPC2 structures provide evidence of a malleable binding site, consistent with the previously documented broad range of sterol ligand specificity.