Recovery from the quiescent developmental stage called dauer is an essential process in C. elegans and provides an excellent model to understand how metabolic transitions contribute to developmental plasticity. Here we show that cholesterol bound to the small secreted proteins SCL-12 or SCL-13 is sequestered in the gut lumen during the dauer state. Upon recovery from dauer, bound cholesterol undergoes endocytosis into lysosomes of intestinal cells, where SCL-12 and SCL-13 are degraded and cholesterol is released. Free cholesterol activates mTORC1 and is used for the production of dafachronic acids. This leads to promotion of protein synthesis and growth, and a metabolic switch at the transcriptional level. Thus, mobilization of sequestered cholesterol stores is the key event for transition from quiescence to growth, and cholesterol is the major signaling molecule in this process.