We studied bile acid and cholesterol metabolism in insulin-dependent diabetes utilizing genetically modified mice unable to synthesize cholic acid (Cyp8b1-/-). Diabetes was induced in Cyp8b1-/- and wild type animals (Cyp8b1+/+) by alloxan, and the mice were fed normal or cholesterol-enriched diet for 10 weeks. The serum levels of cholesterol were strongly increased in diabetic Cyp8b1+/+ mice fed cholesterol, while diabetic Cyp8b1-/- mice did not show any aberrations regardless of the diet. Diabetic cholesterol-fed Cyp8b1+/+ mice had much higher biliary cholesterol and cholesterol saturation index than all other groups, their bile contained a large number of cholesterol crystals, and their canalicular cholesterol transporter Abcg5/g8 mRNA levels were much higher. Cyp7a1 mRNA levels were similar in all diabetic mice but higher compared to non-diabetic animals. The results indicate a critical role for cholic acid for the development of hypercholesterolemia and gallstones in our animal model.