Lipid rafts are specialized membrane microdomains that serve as organizing centers for assembly of signaling molecules, influence membrane fluidity and trafficking of membrane proteins, and regulate different cellular processes such as neurotransmission and receptor trafficking. In this article, we provide an overview of current methods for studying lipid rafts and models for how lipid rafts might form and function. Next, we propose a potential mechanism for regulating lipid rafts in the brain via local control of cholesterol biosynthesis by neurotrophins and their receptors. Finally, we discuss evidence that altered cholesterol metabolism and/or lipid rafts play a critical role in the pathophysiology of multiple CNS disorders, including Smith-Lemli-Opitz syndrome, Huntington's, Alzheimer's, and Niemann-Pick Type C diseases.