This study was designed to elucidate the steps involved in the incorporation of lithocholic acid and the increase in cholesterol in liver plasma membranes after lithocholic acid injection. In vitro, cholesterol incorporation or binding to liver plasma membrane fractions enriched in bile canalicular structures occurred only when cholesterol was added simultaneously with lithocholic acid. The addition of cholic acid did not prevent the incorporation or binding of lithocholic acid and of cholesterol. However, when cholic acid was incubated with membranes already containing lithocholic acid and cholesterol, the ratio of cholesterol to lithocholic acid increased from 2 to more than 3 via a reduction of lithocholic acid. The binding of lithocholic acid and cholesterol to membranes rose 5-fold in the presence of cytosolic proteins. By electron microscopy the canalicular membrane structures with a high cholesterol content exhibited few microvilli, and their lumen appeared to have collapsed. These data suggest that simultaneous interaction of lithocholic acid and cholesterol, and not prior incorporation or binding of lithocholic acid to the membrane, may be a prerequisite to cholesterol accumulation in the membrane.