Liver X receptors (LXRs) have been identified as sterol sensors that regulate cholesterol and lipid homeostasis and macrophage functions. In this study, we found that LXRs also affect sensitivity to bile acid toxicity and cholestasis. Activation of LXRα in transgenic mice confers a female‐specific resistance to lithocholic acid (LCA)–induced hepatotoxicity and bile duct ligation (BDL)–induced cholestasis. This resistance was also seen in wild‐type female mice treated with the synthetic LXR ligand TO1317. In contrast, LXR double knockout (DKO) mice deficient in both the α and β isoforms exhibited heightened cholestatic sensitivity. LCA and BDL resistance in transgenic mice was associated with increased expression of bile acid–detoxifying sulfotransferase 2A (Sult2a) and selected bile acid transporters, whereas basal expression of these gene products was reduced in the LXR DKO mice. Promoter analysis showed that the mouse Sult2a9 gene is a transcriptional target of LXRs. Activation of LXRs also suppresses expression of oxysterol 7α‐hydroxylase (Cyp7b1), which may lead to increased levels of LXR‐activating oxysterols. Conclusion: We propose that LXRs have evolved to have the dual functions of maintaining cholesterol and bile acid homeostasis by increasing cholesterol catabolism and, at the same time, preventing toxicity from bile acid accumulation. (HEPATOLOGY 2007;45:422–432.)