Abstract The sterol 12α-hydroxylase (CYP8B1) is a key enzyme of the bile acid biosynthetic pathway. It regulates the composition of bile acids in bile, i.e. ratio between cholic acid (CA) and chenodeoxycholic acid (CDCA). In similarity with cholesterol 7α-hydroxylase (CYP7A1), this enzyme is subjected to a negative feedback regulation by bile acids. It has been recently reported that bile acid-activated farnesoid X receptor (FXR) induces the small heterodimer partner (SHP) that interacts with α-fetoprotein transcription factor (FTF) and down-regulates CYP7A1 transcription. We studied whether the same mechanism also regulated rat CYP8B1 gene transcription. Feeding rats with CDCA caused a 40–50% decrease of CYP8B1 and hepatocyte nuclear factor 4α (HNF4α) mRNA expression levels. This was associated with an increase in FTF mRNA expression, but SHP mRNA expression was not altered. Electrophoretic mobility shift assay (EMSA) and transient transfection assay of promoter/reporter genes coupled to mutagenesis analysis identified a putative bile acid response element (BARE) that has an HNF4α binding site embedded in two overlapping FTF binding sites. Mutation of the HNF4α binding site markedly reduced basal promoter activity and its repression by bile acids. Cotransfection with FTF strongly repressed CYP8B1 transcription. Interestingly, HNF4α could overcome the inhibitory effects of FTF and bile acids. We conclude that FTF and HNF4α not only play critical roles on CYP8B1 gene transcription, but also mediate bile acid feedback inhibition. This study reveals a novel mechanism by which bile acids inhibit rat CYP8B1 gene transcription by inducing FTF and inhibiting HNF4α expression.