Bile acids repress the transcription of cytochrome P450 7A1 (CYP7A1), which catalyzes the rate-limiting step in bile acid biosynthesis. Although bile acids activate the farnesoid X receptor (FXR), the mechanism underlying bile acid–mediated repression of CYP7A1 remained unclear. We have used a potent, nonsteroidal FXR ligand to show that FXR induces expression of small heterodimer partner 1 (SHP-1), an atypical member of the nuclear receptor family that lacks a DNA-binding domain. SHP-1 represses expression of CYP7A1 by inhibiting the activity of liver receptor homolog 1 (LRH-1), an orphan nuclear receptor that is known to regulate CYP7A1 expression positively. This bile acid–activated regulatory cascade provides a molecular basis for the coordinate suppression of CYP7A1 and other genes involved in bile acid biosynthesis.