Niemann-Pick type C (NPC) disease is a fatal neurodegenerative disorder caused by mutations in NPC1 and NPC2 genes that result in an accumulation of cholesterol in lysosomes. The majority of children with NPC die in adolescence. Currently, no FDA-approved therapies exist for NPC and the mechanisms of NPC disease are not fully understood. Our recent study and the reports from other laboratories showed that 2-hydroxypropyl-γ-cyclodextrin (HPγCD) alleviates cholesterol accumulation in NPC1-deficient cells in spite of its low binding affinity for cholesterol. In this study, we explored the cellular changes that are induced upon HPγCD treatment in NPC1 patient-derived fibroblasts. We show that HPγCD treatment increases lysosome-ER association and enhances autophagic activity. Our study indicates that HPγCD induces an activation of the transcription factor EB (TFEB), a master regulator of lysosomal functions and autophagy. Lysosome-ER association could potentially function as conduits for cholesterol transport from lysosomes to the ER. Accumulating evidence suggests a role for autophagy in rescuing the cholesterol accumulation in NPC and other degenerative diseases. Collectively, our findings suggest that HPγCD restores cellular homeostasis in NPC1-deficient cells via enhancing lysosomal dynamics and functions. Understanding the mechanisms of HPγCD-induced cellular pathways could contribute to effective NPC therapies.