The effect of biliary drainage on incorporation of acetate into cholesterol and on four different enzyme systems in the metabolic pathway from cholesterol to taurocholic acid has been studied in homogenates of rat liver. In homogenates of liver taken from bile fistula rats 48 hours after operation the extent of incorporation of acetate into cholesterol was about eighteen times greater and the extent of 7α‐hydroxylation of cholesterol about eight times greater than in homogenates of liver from control rats. The other reactions studied, the conversion of cholest‐5‐ene‐3β,7α‐diol to 7α‐hydroxycholest‐4‐en‐3‐one, the 12α‐hydroxylation of 7α‐hydroxycholest‐4‐en‐3‐one, and the 7α‐hydroxylation of taurodeoxycholic acid, were influenced much less by biliary drainage. It is suggested that the hydroxylation of cholesterol to cholest‐5‐ene‐3β, 7α‐diol might be a rate‐determining step in the conversion of cholesterol to bile acids.