Cholesterol and its oxysterol congeners are important constituents of cell membranes and function as intermediates in several crucial biosynthetic pathways. These compounds autoregulate their metabolic fate by end-product repression and activation of downstream catabolism. Although end-product repression by oxysterols is relatively well understood, the mechanism by which these compounds act as positive transcription signalling molecules is unknown. Here we identify a specific group of endogenous oxysterols that activate transcription through the nuclear receptor LXR alpha. Transactivation of LXR alpha by oxysterols occurs at concentrations at which these compounds exist in vivo. The most potent activators also serve as intermediary substrates in the rate-limiting steps of three important metabolic pathways: steroid hormone biosynthesis, bile acid synthesis, and conversion of lanosterol to cholesterol. Our results demonstrate the existence of a nuclear receptor signalling pathway for oxysterols and suggest that LXR alpha may be important as a sensor of cholesterol metabolites.