We investigated the effect of SC-435, a competitive inhibitor of ileal apical sodium-dependent bile acid cotransporter (ASBT) on ileal bile acid absorption and the hepatic nuclear receptor FXR (farnesoid X receptor), which regulates cholesterol 7 alpha-hydroxylase (CYP7A1) activity and mRNA levels. Eighteen New Zealand White (NZW) rabbits were divided into 2 groups: controls (n = 10) and fed SC-435 125 mg/kg/d for 1 week (n = 8). In rabbits treated with SC-435, fecal bile acid outputs increased by more than 8 times, reflecting substantial bile acid malabsorption. Plasma cholesterol levels decreased 26%, while bile acid pool sizes and biliary bile acid outputs did not change after treatment. CYP7A1 activity increased 64% and mRNA rose by 4 times after treatment. The expression of FXR target genes in the liver, short heterodimer partner (SHP) and bile salt export pump (BSEP), decreased 11.6 and 2.6 times, respectively, after treatment, which indicates inactivation of hepatic FXR. However, the mRNA levels of ileal bile acid binding protein (IBABP) did not change significantly, while ileal ASBT mRNA expression increased by 2.4 times after treatment. Rabbits treated with SC-435 developed ileal bile acid malabsorption, which decreased the return of bile acids (FXR ligands) to the liver to inactivate hepatic FXR, which upregulated CYP7A1 and lowered plasma cholesterol levels. Although fecal bile acid malabsorption was substantial, increased bile acid production from hepatic cholesterol kept biliary bile acid outputs intact. Thus, a new balance was reached in the liver, where increased bile acid synthesis compensated for diminished ileal bile acid absorption to maintain the circulating enterohepatic bile acid pool.