Disruptions in cholesterol homeostasis and metabolism can lead to high cholesterol concentrations in diseased tissue and the formation of cholesterol crystals (CC). CC are often overlooked in traditional histo/immunohistochemistry as the ethanol, used for tissue processing, can dissolve them. This masks CC presence and potential involvement in pathogenic mechanisms. Using Scanning Electron Microscopy (SEM) of tissues prepared without an ethanol dehydration step, we identified the presence of CC: i) in “lipid pools” between retinal pigment epithelium (RPE) and photoreceptors (PR); ii) circulating freely in diabetic murine blood; and iii) within circulating monocytes of diabetic human subjects. Since CC are very stable physiologically and are not easily amenable to dissolving in vivo, they become a source of chronic inflammation. CC are recognized by the innate immune system as foreign bodies because of their shape, firmness, and inability to be dissolved. Moreover, CC also induce inflammation via the NLRP3 inflammasome activation. These novel preliminary and published studies have led us to propose the following hypothesis (see schematic in Fig.1): Diabetes- induced disruption of i) systemic cholesterol homeostasis, ii) blood retinal barrier function; and iii) SIRT1, LXR and CYP46A1 expression alters retinal cholesterol homeostasis leading to CC formation within key locations: RPE, PR, monocytes/macrophages, and in the circulation affecting the endothelium. This CC formation results in intra- and extracellular complement activation and priming of the NLRP3 inflammasome for its activation and release of highly damaging pro-inflammatory cytokines, promoting development of DR. To test this hypothesis, we propose the following Specific Aims: Aim1: To determine the temporal changes in retinal cholesterol accumulation that lead to CC formation. Aim 2: To test the hypothesis that diabetes- induced cholesterol accumulation and CC formation in the retina and in monocytes/macrophages induces activation of intracellular and extracellular complement to trigger the NLRP3 inflammasome and IL-1β production. Aim 3: To test the hypothesis that LXR activation and direct sequestration of cholesterol by alpha-cyclodextrin can inhibit CC-induced complosome and NLRP3 inflammasome formation in the diabetic retina and in monocytes/macrophages cells, thus preventing chronic inflammation and development of DR. Impact: The successful completion of this project will result in identifying an entirely novel pathway in which CC-induced complosome and NLRP3 inflammasome formation that can be pharmacologically targeted to prevent DR.