Cholesterol 7-alpha-hydroxylase (CYP7A1) is the key enzyme that commits cholesterol to the neutral bile acid biosynthesis pathway and is highly regulated. In the current studies, we have uncovered a role for the transcriptional co-activator PGC-1alpha in CYP7A1 gene transcription. PGC-1alpha plays a vital role in adaptive thermogenesis in brown adipose tissue and stimulates genes important to mitochondrial function and oxidative metabolism. It is also involved in the activation of hepatic gluconeogenesic gene expression during fasting. Because the mRNA for CYP7A1 was also induced in mouse liver by fasting, we reasoned that PGC-1alpha might be an important co-activator for CYP7A1. Here we show that PGC-1alpha and CYP7A1 are also co-induced in livers of mice in response to streptozotocin induced diabetes. Additionally, infection of cultured HepG2 cells with a recombinant adenovirus expressing PGC-1alpha directly activates CYP7A1 gene expression and increases bile acid biosynthesis as well. Furthermore, we show that PGC-1alpha activates the CYP7A1 promoter directly in transient transfection assays in cultured cells. Thus, PGC-1alpha is a key activator of CYP7A1 and bile acid biosynthesis and is likely responsible for the fasting and diabetes dependent induction of CYP7A1. PGC-1alpha has already been shown to be a critical activator of several other oxidative processes including adaptive thermogenesis and fatty acid oxidation. Our studies provide further evidence of the fundamental role played by PGC-1alpha in oxidative metabolism and define PGC-1alpha as a link between diabetes and bile acid metabolism.