The seven yeast OSH genes (OSH1-OSH7) encode a family of orthologs of the mammalian oxysterol-binding protein (OSBP). The OSH genes share at least one essential overlapping function, potentially linked to the regulation of secretory trafficking and membrane lipid composition. To investigate the essential roles of the OSH genes, we constructed conditional OSH mutants and analyzed their cellular defects. Elimination of all OSH function altered intracellular sterol-lipid distribution, caused vacuolar fragmentation, and resulted in an accumulation of lipid droplets in the cytoplasm and within vacuolar fragments. Gradual depletion of Osh proteins also caused cell budding defects and abnormal cell wall deposition. In OSH mutant cells endocytosis was severely impaired, but protein transport to the vacuole and the plasma membrane was largely unaffected. Other mutants affecting sterol-lipid function and distribution, namely erg2Delta and arv1Delta, shared similar defects. These findings suggested that OSH genes, through effects on intracellular sterol distribution, establish a plasma membrane lipid composition that promotes endocytosis.