The formation of mature secretory granules is essential for proper storage and regulated release of hormones and neuropeptides. In pancreatic β cells, cholesterol accumulation causes defects in insulin secretion and may participate in the pathogenesis of type 2 diabetes. Using a novel cholesterol analog, we show for the first time that insulin granules are the major sites of intracellular cholesterol accumulation in live β cells. This is distinct from other, non-secretory cell types, in which cholesterol is concentrated in the recycling endosomes and the trans-Golgi network. Excess cholesterol was delivered specifically to insulin granules, which caused granule enlargement and retention of syntaxin 6 and VAMP4 in granule membranes, with concurrent depletion of these proteins from the trans-Golgi network. Clathrin also accumulated in the granules of cholesterol-overloaded cells, consistent with a possible defect in the last stage of granule maturation, during which clathrin-coated vesicles bud from the immature granules. Excess cholesterol also reduced the docking and fusion of insulin granules at the plasma membrane. Together, the data support a model in which cholesterol accumulation in insulin secretory granules impairs the ability of these vesicles to respond to stimuli, and thus reduces insulin secretion.