Cholesterol is converted into dozens of primary and secondary bile acids through pathways subject to negative feedback regulation mediated by the nuclear receptor farnesoid X receptor (FXR) and other effectors. Disruption of the sterol 12α-hydroxylase gene (Cyp8b1) in mice prevents the synthesis of cholate, a primary bile acid, and its metabolites. Feedback regulation of the rate-limiting biosynthetic enzyme cholesterol 7α-hydroxylase (CYP7A1) is lost in Cyp8b1^–/– mice, causing expansion of the bile acid pool and alterations in cholesterol metabolism. Expression of other FXR target genes is unaltered in these mice. Cholate restores CYP7A1 regulation in vivo and in vitro. The results implicate cholate as an important negative regulator of bile acid synthesis and provide preliminary evidence for ligand-specific gene activation by a nuclear receptor.