Dengue virus (DENV) is a flavivirus of worldwide importance, with approximately 4 billion people across 128 countries at risk of infection, and up to 390 million infections and 96 million clinically apparent cases estimated annually. Previous in vitro studies have shown that lipids and lipoproteins play a role in modifying virus infectivity. However, the relationship between development of severe dengue and total cholesterol, high-density lipoprotein cholesterol (HDL-C), and low-density lipoprotein cholesterol (LDL-C), respectively, is unclear. We analyzed data from 789 laboratory-confirmed dengue cases and 447 other febrile illnesses (OFI) in a prospective pediatric hospital-based study in Managua, Nicaragua between August 2005 and January 2013, using three different classifications of dengue severity: World Health Organization (WHO) 1997, WHO 2009, and standardized intervention categories. Total serum cholesterol and LDL-C levels decreased over the course of illness and were generally lower with increasing dengue severity, regardless of classification scheme. Greater decreases in LDL-C than HDL-C were observed among dengue-positive patients compared to patients with OFI and among severe dengue compared to mild dengue cases. Furthermore, daily cholesterol levels declined with daily albumin blood levels. To examine the effect of cholesterol at presentation on subsequent risk of development of severe dengue, relative risks and 95% confidence intervals were calculated using multivariable modified Poisson models. We found that lower total serum cholesterol and LDL-C levels at presentation were associated with subsequent risk of developing dengue hemorrhagic fever/dengue shock syndrome using the WHO 1997 dengue severity classification, and thus that the reduction in LDL-C is likely driving the decreases observed in total serum cholesterol levels among dengue-positive patients. Our results suggest that cholesterol blood levels are important correlates of dengue pathophysiology and should be explored as part of a prognostic biomarker panel for severe dengue.