The goal of this study was to understand why the expression of low density lipoprotein (LDL) receptors by the liver is poorly down-regulated by cholesterol. We examined the hypothesis that 7 alpha-hydroxylase may indirectly induce the expression of the LDL receptor by metabolizing, i.e. inactivating oxysterol repressors. Non-hepatic Chinese hamster ovary cells, transfected with a plasmid encoding 7 alpha-hydroxylase, expressed both the mRNA and functional activity of this liver-specific enzyme. In the presence of 5% serum, expression of the LDL receptor by transfected cells was > 20 times that of non-transfected cells despite a 50% increased content of cholesterol ester. Both cell types displayed an almost complete repression of the LDL receptor by the oxysterol 25-hydroxycholesterol, suggesting that transcriptional control of the LDL receptor gene remained intact in the transfected cells. However, only cells expressing 7 alpha-hydroxylase showed a derepression of the LDL receptor with time. This transient sensitivity to 25-hydroxycholesterol repression was attributed to a 3-fold greater rate of metabolism of [3H]25-hydroxycholesterol. The paradoxical induction of LDL receptor mRNA in transfected cells having greater amounts of cholesterol esters suggests that 7 alpha-hydroxylase may preferentially use oxysterols rather than cholesterol as substrates. The combined data are consistent with the proposal that 7 alpha-hydroxylase indirectly induces the LDL receptor gene by metabolizing (inactivating) oxysterol repressors. Liver-specific expression of 7 alpha-hydroxylase can account for the relative resistance of hepatic LDL receptors to down-regulation.