Lanolin is a waxy by-product that comes from a sheep’s wool when the sheep is sheared.  It is derived when one washes the wool in hot water with a scouring detergent. A solvent is then used to extract the wax, or lanolin. It’s its pure form, lanolin is dark and very viscous.

It is then refined into the form one can buy it in to can add to emollients.  Lanolin’s molecular structure is very similar to that of human skin lipids; the reason it’s so valuable is that it holds 400 times it weight in water.  That means that it keeps moisture inside rather than letting it escape. Thus, it has some occlusive properties too. 

That’s how lanolin succeeds in being a very powerful ingredient in moisturizers.