Background. We studied the effects on and possible interaction of balloon denudation and hypercholesterolemia on large arteries in the rabbit with special regard to structure and vascular reactivity. Methods and Results. New Zealand White rabbits fed a 1% cholesterol diet or a standard diet for 14 weeks underwent balloon denudation of the left iliac artery 4 weeks before death. Both the balloon-injured and the control iliac arteries were harvested for in vitro studies of vascular reactivity, for immunohistochemical staining with monoclonal antibodies directed at smooth muscle cells and macrophages, and for scanning electron microscopy. Balloon injury caused intimai smooth muscle proliferation with little macrophage infiltration and was followed by recovery of endothelium-dependent vasodilator function within 4 weeks. Hypercholesterolemia caused macrophage-rich lesions confined to the intima with moderate impairment of endothelial vasodilator function. Balloon injury in the setting of hypercholesterolemia caused intimai smooth muscle cell proliferation and intense macrophage infiltration throughout the arterial wall and severe impairment of endothelial vasodilator function. Scanning electron microscopy confirmed regrowth of the endothelium in all balloon-injured vessels. In the balloon-injured arteries of hypercholesterolemic animals, the regenerated endothelium exhibited areas of atypical morphology not seen after balloon injury or hypercholesterolemia alone. Conclusions. The present study shows that balloon injury, hypercholesterolemia, and their combination cause distinct lesions and functional disturbances. An arterial balloon injury in the setting of hypercholesterolemia produces a diffuse inflammatory response that is accompanied by a sustained impairment of endothelial function and a marked proliferative response.