Maturity-onset diabetes of the young type 3 (MODY3) is caused by haploinsufficiency of hepatocyte nuclear factor-1alpha (encoded by TCF1). Tcf1-/- mice have type 2 diabetes, dwarfism, renal Fanconi syndrome, hepatic dysfunction and hypercholestrolemia. Here we explore the molecular basis for the hypercholesterolemia using oligonucleotide microchip expression analysis. We demonstrate that Tcf1-/- mice have a defect in bile acid transport, increased bile acid and liver cholesterol synthesis, and impaired HDL metabolism. Tcf1-/- liver has decreased expression of the basolateral membrane bile acid transporters Slc10a1, Slc21a3 and Slc21a5, leading to impaired portal bile acid uptake and elevated plasma bile acid concentrations. In intestine and kidneys, Tcf1-/- mice lack expression of the ileal bile acid transporter (Slc10a2), resulting in increased fecal and urinary bile acid excretion. The Tcf1 protein (also known as HNF-1alpha) also regulates transcription of the gene (Nr1h4) encoding the farnesoid X receptor-1 (Fxr-1), thereby leading to reduced expression of small heterodimer partner-1 (Shp-1) and repression of Cyp7a1, the rate-limiting enzyme in the classic bile acid biosynthesis pathway. In addition, hepatocyte bile acid storage protein is absent from Tcf1-/- mice. Increased plasma cholesterol of Tcf1-/- mice resides predominantly in large, buoyant, high-density lipoprotein (HDL) particles. This is most likely due to reduced activity of the HDL-catabolic enzyme hepatic lipase (Lipc) and increased expression of HDL-cholesterol esterifying enzyme lecithin:cholesterol acyl transferase (Lcat). Our studies demonstrate that Tcf1, in addition to being an important regulator of insulin secretion, is an essential transcriptional regulator of bile acid and HDL-cholesterol metabolism.