Cholesterol 7alpha-hydroxylase (CYP7A1) catalyzes the rate-limiting step in the classic pathway of hepatic bile acid biosynthesis from cholesterol. During fasting and in type I diabetes, elevated levels of peroxisome proliferator-activated receptor gamma-coactivator-1alpha (PGC-1alpha) induce expression of the Cyp7A1 gene and overexpression of PGC-1alpha in hepatoma cells stimulates bile acid synthesis. Using Ad-PGC-1alpha-RNA interference to induce acute disruption of PGC-1alpha in mice, here we show that PGC-1alpha is necessary for fasting-mediated induction of CYP7A1. Co-immunoprecipitation and promoter activation studies reveal that the induction of CYP7A1 is mediated by direct interaction between PGC-1alpha and the AF2 domain of liver receptor homolog-1 (LRH-1). In contrast, the very similar PGC-1beta could not substitute for PGC-1alpha. We also show that transactivation of PGC-1alpha and LRH-1 is repressed by the small heterodimer partner (SHP). Treatment of mice with GW4064, a synthetic agonist for farnesoid X receptor, induced SHP expression and decreased both the recruitment of PGC-1alpha to the Cyp7A1 promoter and the fasting-induced expression of CYP7A1 mRNA. These data suggest that PGC-1alpha is an important co-activator for LRH-1 and that SHP targets the interaction between LRH-1 and PGC-1alpha to inhibit CYP7A1 expression. Overall, these studies provide further evidence for the important role of PGC-1alpha in bile acid homeostasis and suggest that pharmacological targeting of farnesoid X receptor in vivo can be used to reverse the increase in CYP7A1 associated with adverse metabolic conditions.