Cholesterol 7 alpha-hydroxylase catalyzes the rate-limiting step in the bile acid biosynthetic pathway. Regulation of this pathway is thought to occur solely as a result of a negative feedback control mechanism that is dependent upon the flux and composition of bile salts undergoing enterohepatic circulation. We have used the chronic biliary diverted (CBD) rat model to study the mechanism of regulation of cholesterol 7 alpha-hydroxylase by taurocholate. As compared to nonoperated controls, CBD rats exhibited a 4.2-fold increase in cholesterol 7 alpha-hydroxylase-specific activity, a 4.5-fold increase in enzyme mass, a 10-fold increase in steady-state mRNA levels, and a 3.4-fold increase in transcriptional (nuclear "run-on") activity. Intraduodenal infusion of taurocholate at a rate of 36 mumol/100 g/h for 48 h in CBD rats caused a significant (p less than 0.05) decrease (64%) in cholesterol 7 alpha-hydroxylase-specific activity, mass (72%), steady-state mRNA levels (74%), and transcriptional activity (57%) as compared to CBD controls. Cholesterol feeding increased cholesterol 7 alpha-hydroxylase-specific activity (288%), poly(A) RNA levels (291%), and transcriptional activity (220%) as compared to control animals. These results provide convincing evidence that bile salts, either directly or indirectly, down-regulate in vivo transcription of the cholesterol 7 alpha-hydroxylase gene, which is probably the major mechanism regulating the levels of this enzyme. The results of this study also suggest that the promoter for cholesterol 7 alpha-hydroxylase may have both bile salt- and sterol-responsive elements.