Primary bile acids are synthesized from cholesterol in the liver and thereafter are secreted into the bile and small intestine. Gut flora modify primary bile acids to produce secondary bile acids leading to a chemically diverse bile acid pool that is circulated between the small intestine and liver. A majority of primary and secondary bile acids in higher vertebrates have a 3alpha-hydroxyl group. Here, we characterize a line of knockout mice that cannot epimerize the 3beta-hydroxyl group of cholesterol and as a consequence synthesize a bile acid pool in which 3beta-hydroxylated bile acids predominate. This alteration causes death in 90% of newborn mice and decreases the absorption of dietary cholesterol in surviving adults. Negative feedback regulation of bile acid synthesis mediated by the farnesoid X receptor (FXR) is disrupted in the mutant mice. We conclude that the correct stereochemistry of a single hydroxyl group at carbon 3 in bile acids is required to maintain their physiologic and regulatory functions in mammals.