Osteoporosis and age-related bone loss are important public health concerns. Therefore, there is a high level of interest in the development of medical interventions and lifestyle changes that reduce the incidence of osteoporosis and age-related bone loss. Decreased bone mineral density is associated with high cholesterol, and patients on statins have increased bone mineral densities, strongly implicating cholesterol as a negative regulator of bone homeostasis. In this study, using both molecular and pharmacological approaches, we have been able to demonstrate that the primary cholesterol metabolite, 27-hydroxycholesterol, through its actions on both estrogen receptors and liver X receptors, decreases osteoblast differentiation and enhances osteoclastogenesis, resulting in increased bone resorbtion in mice. Induction of the short heterodimer partner protein by estrogens in osteoblasts can attenuate the liver X receptor-mediated actions of 27-hydroxycholesterol in bone. These data establish a mechanistic link between cholesterol and bone quality, highlight an unexpected target of estrogens in osteoblasts, and define a signaling axis, the therapeutic exploitation of which is likely to yield novel antiosteoporotic drugs.