The major metabolic pathway for elimination of cholesterol is via conversion to bile acids. In addition to this metabolic function, bile acids also act as signaling molecules that negatively regulate their own biosynthesis. However, the precise nature of this signaling pathway has been elusive. We have isolated an endogenous biliary component (chenodeoxycholic acid) that selectively activates the orphan nuclear receptor, FXR. Structure-activity analysis defined a subset of related bile acid ligands that activate FXR and promote coactivator recruitment. Finally, we show that ligand-occupied FXR inhibits transactivation from the oxysterol receptor LXR alpha, a positive regulator of cholesterol degradation. We suggest that FXR (BAR) is the endogenous bile acid sensor and thus an important regulator of cholesterol homeostasis.