Lanolin is a waxy substance secreted by the sebaceous glands of sheep. Its biological function is to coat the wool fibers, protecting the fleece and the animal's skin from water and weather. Raw sheared wool contains a significant amount of this grease, which must be removed before the wool can be spun into yarn.
After shearing, the raw wool is washed in a process called scouring, typically using hot water and detergent. The greasy fraction is separated from the wash water, then purified through steps such as centrifugation, filtering, and refining. The result is anhydrous lanolin, which may be further processed into derivatives such as lanolin alcohol or hydrogenated lanolin.
Because lanolin is recovered from wool rather than from slaughter, it is technically a co-product of the wool industry. The sheep are not killed for lanolin itself, but its production is inseparable from commercial wool farming, which is why it is classified as an animal-derived, non-vegan ingredient.