Niemann-Pick C1 (NPC) disease, an autosomal recessive lipid trafficking disorder caused by loss-of-function mutations in the NPC1 gene, is characterized by progressive neurodegeneration resulting in cognitive impairment, ataxia and early death. Little is known about the cellular pathways leading to neuron loss. Here, we studied the effects of diminishing expression of cystatin B, an endogenous inhibitor of cathepsins B, H and L, on the development of NPC neuropathology. We show that decreased expression of cystatin B in patient fibroblasts enhances cathepsin activity. Deletion of the encoding Cstb gene in Npc1-deficient mice resulted in striking deleterious effects, particularly within the cerebellum where diffuse loss of Purkinje cells was observed in young mice. This severe pathology occurred through cell autonomous mechanisms that triggered Purkinje cell death. Moreover, our analyses demonstrated the mislocalization of lysosomal cathepsins within the cytosol of Npc1-deficient Purkinje cells. We provide evidence that this may be a consequence of damage to lysosomal membranes by reactive oxygen species (ROS), leading to the leakage of lysosomal contents that culminates in apoptotic cell death. Consistent with this notion, toxicity from ROS was attenuated in an NPC cell model by cystatin B over-expression or pharmacological inhibition of cathepsin B. The observation that Npc1 and Cstb deletion genetically interact to potently enhance the degenerative phenotype of the NPC cerebellum provides strong support for the notion that lysosomal membrane permeabilization contributes to cerebellar degeneration in NPC disease.