Sterol 27-hydroxylase (CYP27) participates in the conversion of cholesterol to bile acids. We examined lipid metabolism in mice lacking the Cyp27 gene. On normal rodent chow, Cyp27(-/-) mice have 40% larger livers, 45% larger adrenals, 2-fold higher hepatic and plasma triacylglycerol concentrations, a 70% higher rate of hepatic fatty acid synthesis, and a 70% increase in the ratio of oleic to stearic acid in the liver versus Cyp27(+/+) controls. In Cyp27(-/-) mice, cholesterol 7alpha-hydroxylase activity is increased 5-fold, but bile acid synthesis and pool size are 47 and 27%, respectively, of those in Cyp27(+/+) mice. Intestinal cholesterol absorption decreases from 54 to 4% in knockout mice, while fecal neutral sterol excretion increases 2.5-fold. A compensatory 2.5-fold increase in whole body cholesterol synthesis occurs in Cyp27(-/-) mice, principally in liver, adrenal, small intestine, lung, and spleen. The mRNA for the cholesterogenic transcription factor sterol regulatory element-binding protein-2 (SREBP-2) and mRNAs for SREBP-2-regulated cholesterol biosynthetic genes are elevated in livers of mutant mice. In addition, the mRNAs encoding the lipogenic transcription factor SREBP-1 and SREBP-1-regulated monounsaturated fatty acid biosynthetic enzymes are also increased. Hepatic synthesis of fatty acids and accumulation of triacylglycerols increases in Cyp27(-/-) mice and is associated with hypertriglyceridemia. Cholic acid feeding reverses hepatomegaly and hypertriglyceridemia but not adrenomegaly in Cyp27(-/-) mice. These studies confirm the importance of CYP27 in bile acid synthesis and they reveal an unexpected function of the enzyme in triacylglycerol metabolism.