The nuclear receptors liver X receptor alpha (LXRalpha) (NR1H3) and LXRbeta (NR1H2) are important regulators of genes involved in lipid metabolism, including ABCA1, ABCG1, and sterol regulatory element-binding protein-1c (SREBP-1c). Although it has been demonstrated that oxysterols are LXR ligands, little is known about the identity of the physiological activators of these receptors. Here we confirm earlier studies demonstrating a dose-dependent induction of ABCA1 and ABCG1 in human monocyte-derived macrophages by cholesterol loading. In addition, we show that formation of 27-hydroxycholesterol and cholestenoic acid, products of CYP27 action on cholesterol, is dependent on the dose of cholesterol used to load the cells. Other proposed LXR ligands, including 20(S)-hydroxycholesterol, 22(R)-hydroxycholesterol, and 24(S),25-epoxycholesterol, could not be detected under these conditions. A role for CYP27 in regulation of cholesterol-induced genes was demonstrated by the following findings. 1) Introduction of CYP27 into HEK-293 cells conferred an induction of ABCG1 and SREBP-1c; 2) upon cholesterol loading, CYP27-expressing cells induce these genes to a greater extent than in control cells; 3) in CYP27-deficient human skin fibroblasts, the induction of ABCA1 in response to cholesterol loading was ablated; and 4) in a coactivator association assay, 27-hydroxycholesterol functionally activated LXR. We conclude that 27-hydroxylation of cholesterol is an important pathway for LXR activation in response to cholesterol overload.