De novo synthesis of cholesterol and low-density lipoprotein (LDL) receptor levels are suppressed in the presence of cholesterol. Recent evidence suggests that a cholesterol metabolite (possibly a hydroxysterol), not cholesterol per se, is the effector that inhibits transcription of genes encoding enzymes involved in sterol synthesis and LDL receptors. We found that 26-hydroxycholesterol inhibits human ovarian cell sterol synthesis, and that luteinized human granulosa cells contain 26-hydroxylase messenger RNA (mRNA). We proceeded to characterize the enzyme generating 26-hydroxycholesterol in the rat ovary. Mitochondria derived from ovaries of PMSG-human CG (hCG) primed immature rats (day 3 post-hCG) metabolized [3H] cholesterol into [3H]26-hydroxycholesterol in the presence of nicotinamide adenine dinucleotide phosphate and aminoglutethimide (100 micrograms/ml), added to inhibit metabolism of sterols by the cholesterol side-chain cleavage system. The identity of the product was confirmed by chromatography in several systems; recrystallization to constant specific activity and mass spectrometry. Negligible 26-hydroxylase activity was detected in other ovarian subcellular fractions. 26-Hydroxycholesterol formation progressed at a linear rate for up to 40 min and was linearly related to mitochondrial protein added to the incubation mixture. 26-Hydroxylase was markedly stimulated (5-fold) by calcium (0.2 mM). Maximal rates of 26-hydroxycholesterol formation observed were 1 pmol/min.mg protein. This activity is substantially lower than cholesterol side-chain cleavage measured in the absence of aminoglutethimide. Ketoconazole (1-100 microM) inhibited 26-hydroxylase in a dose-dependent manner. Pregnenolone (1-1000 microM) and progesterone (1-100 microM) inhibited 26-hydroxylase in a dose-dependent manner, with appreciable inhibitory effects in the 1-10 microM range. We suggest that 26-hydroxycholesterol is an intracrine regulator that controls cellular sterol metabolism. Formation of 26-hydroxcholesterol in ovarian cells may be regulated by steroidogenic activity in such a way as to ensure availability of steroid hormone precursors. When steroidogenesis is active, 26-hydroxylase is inhibited by products of the side-chain cleavage system, allowing increased de novo sterol synthesis and LDL uptake. With reduced steroidogenic activity and less demand for cholesterol, 26-hydroxylase is not blocked, permitting formation of 26-hydroxycholesterol with attendant reduction in sterol synthesis and LDL receptor gene expression.