Lysosomal acid lipase (LAL) cleaves cholesteryl esters and triglycerides to generate free fatty acids and cholesterol in lysosomes. In LAL gene-knockout (lal^−/−) mice, blockage of cholesteryl ester and triglyceride metabolism led to abnormal organization of the thymus and spleen, as well as neutral lipid accumulation in these organs. LAL deficiency impaired T cell development in the thymus. Peripheral T cells were reduced dramatically in lal^−/− mice, due largely to increased apoptosis and decreased proliferation of lal^−/− T cells in the thymus and peripheral compartments. These lal^−/− T cells lost the ability to respond to T cell receptor stimulation, including reduced expression of cell surface receptor CD69, abolishment of T cell proliferation, and decreased expression of T lymphokines after stimulation by either anti-CD3 plus anti-CD28 or phorbol-12-myristate-13-acetate and ionomycin. Differentiation of Th1 and Th2 CD4⁺ effector lymphocytes by T cell receptor stimulation was blocked in lal^−/− mice. The ratio of CD4⁺CD25⁺FoxP3⁺ Tregs to CD4⁺ T cells was increased in lal^−/− spleens. Bone marrow chimeras demonstrated retardation of T cell development and maturation in lal^−/− mice due to defects in T cell precursors. Therefore, LAL, its downstream genes, and lipid mediators all play essential roles in development, homeostasis, and function of T cells. The altered development and function of lal^−/− T cells contributes to disease formation in various organs during LAL deficiency.