The brain is the most cholesterol-rich organ in the body, most of which comes from in situ synthesis. Here we demonstrate that in insulin-deficient diabetic mice, there is a reduction in expression of the major transcriptional regulator of cholesterol metabolism, SREBP-2, and its downstream genes in the hypothalamus and other areas of the brain, leading to a reduction in brain cholesterol synthesis and synaptosomal cholesterol content. These changes are due, at least in part, to direct effects of insulin to regulate these genes in neurons and glial cells and can be corrected by intracerebroventricular injections of insulin. Knockdown of SREBP-2 in cultured neurons causes a decrease in markers of synapse formation and reduction of SREBP-2 in the hypothalamus of mice using shRNA results in increased feeding and weight gain. Thus, insulin and diabetes can alter brain cholesterol metabolism, and this may play an important role in the neurologic and metabolic dysfunction observed in diabetes and other disease states.