Obesity is associated with an increased risk of diabetes type 2, dyslipidemia, and atherosclerosis. These cardiovascular and metabolic abnormalities are exacerbated by excessive dietary fat, particularly cholesterol and its metabolites. High adipose tissue glucocorticoid levels, generated by the intracellular enzyme 11beta-hydroxysteroid dehydrogenase type 1 (11beta-HSD1), are also implicated in the pathogenesis of obesity, metabolic syndrome, and atherosclerosis. 11beta-HSD1 also interconverts the atherogenic oxysterols 7-ketocholesterol (7KC) and 7beta-hydroxycholesterol (7beta-HC). Here, we report that 11beta-HSD1 catalyzes the reduction of 7KC to 7beta-HC in mature 3T3-L1 and 3T3-F442A adipocytes, leading to cellular accumulation of 7beta-HC. Approximately 73% of added 7KC was reduced to 7beta-HC within 24 h; this conversion was prevented by selective inhibition of 11beta-HSD1. Oxysterol and glucocorticoid conversion by 11beta-HSD1 was competitive and occurred with a physiologically relevant IC(50) range of 450 nm for 7KC inhibition of glucocorticoid metabolism. Working as an inhibitor of 11beta-reductase activity, 7KC decreased the regeneration of active glucocorticoid and limited the process of differentiation of 3T3-L1 preadipocytes. 7KC and 7beta-HC did not activate liver X receptor in a transactivation assay, nor did they display intrinsic activation of the glucocorticoid receptor. However, when coincubated with glucocorticoid (10 nm), 7KC repressed, and 7beta-HC enhanced, glucocorticoid receptor transcriptional activity. The effect of 7-oxysterols resulted from the modulation of 11beta-HSD1 reaction direction, and could be ameliorated by overexpression of hexose 6-phosphate dehydrogenase, which supplies reduced nicotinamide adenine dinucleotide phosphate to 11beta-HSD1. Thus, the activity and reaction direction of adipose 11beta-HSD1 is altered under conditions of oxysterol excess, and could impact upon the pathophysiology of obesity and its complications.