A Bayesian mechanism-based pharmacokinetic/pharmacodynamic model of cytochrome P450 3A4 (CYP3A4) activity was developed based on a clinical study of the effects of ketoconazole and rifampin on midazolam exposure and plasma 4β-hydroxycholesterol (4βHC) concentrations. Simulations from the model demonstrated that the dynamic range of 4βHC as a biomarker of CYP3A4 induction or inhibition was narrower than that of midazolam; an inhibitor that increases midazolam area under the curve by 20-fold may only result in a 20% decrease in 4βHC after 14 days of dosing. Likewise, an inducer that elevates CYP3A4 activity by 1.2-fold would reduce the area under the curve of midazolam by 50% but would only increase 4βHC levels by 20% after 14 days of dosing. Elevation in 4βHC could be reliably detected with a twofold induction in CYP3A4 activity with study sample sizes (N ~ 6-20) typically used in early clinical development. Only a strong CYP3A4 inhibitor (e.g., ketoconazole) could be detected with similar sample sizes.