In vitro and in vivo studies have shown that the sterol 27-hydroxylase (CYP27) gene is transcriptionally repressed by hydrophobic bile acids. The molecular mechanism(s) of repression of CYP27 by bile acids is unknown. To identify the bile acid responsive element (BARE) and transcription factor(s) that mediate the repression of CYP27 by bile acids, constructs of the CYP27 5'-flanking DNA were linked to either the CAT or luciferase reporter gene and transiently transfected into primary rat hepatocytes. Taurocholate (TCA), taurodeoxycholate (TDCA) and taurochenodeoxycholate (TCDCA) significantly reduced CAT activities of the -840/+23, -329/+23, and -195/+23 mCAT constructs. A -76/+23 construct showed no regulation by bile acids. When a DNA fragment (-110/-86) from this region was cloned in front of an SV 40 promoter it showed down-regulation by TDCA. 'Super'-electrophoretic mobility shift assays (EMSA) indicated that both HNF1alpha and C/EBP bind to the -110 to -86 bp DNA fragment. Recombinant rat HNF1alpha and C/EBPalpha competitively bound to this DNA fragment. 'Super'-EMSA showed that TDCA addition to hepatocytes in culture decreased HNF1alpha, but not C/EBP, binding to the -110/-86 bp DNA fragment. A four base pair substitution mutation (-103 to -99) in this sequence eliminated TCA and TDCA regulation of the (-840/+23) construct. The substitution mutation also eliminated (>95%) HNF1alpha, but not C/EBP, binding to this DNA fragment. We conclude that bile acids repress CYP27 transcription through a putative BARE located between -110 and -86 bp of the CYP27 promoter. The data suggest that bile acids repress CYP27 transcriptional activity by decreasing HNF1alpha binding to the CYP27 promoter.