We demonstrate that mice lacking the oxysterol receptor, LXR alpha, lose their ability to respond normally to dietary cholesterol and are unable to tolerate any amount of cholesterol in excess of that which they synthesize de novo. When fed diets containing cholesterol, LXR alpha (-/-) mice fair to induce transcription of the gene encoding cholesterol 7 alpha-hydroxylase (Cyp7a), the rate-limiting enzyme in bile acid synthesis. This defect is associated with a rapid accumulation of large amounts of cholesterol in the liver that eventually leads to impaired hepatic function. The regulation of several other crucial lipid metabolizing genes is also altered in LXR alpha (-/-) mice. These results demonstrate the existence of a physiologically significant feed-forward regulatory pathway for sterol metabolism and establish the role of LXR alpha as the major sensor of dietary cholesterol.