The role of hepatocytes in bile acid and cholesterol metabolism has been extensively studied. By contrast, nothing is known about the role of bile ductular epithelial cells in cholesterol and bile acid metabolism. The purpose of the current studies was to establish whether bile ductular epithelial cells synthesize cholesterol, bile acids or both and to determine whether these cells are capable of metabolizing (hydroxylating, conjugating) bile acids. Bile ductular epithelial cells were isolated from rat liver after ligation of the common bile duct for 6 to 8 wk. Bile ductular epithelial cells were essentially free ( > 99%) of hepatocytes and were histochemically positive ( > 80%) for γ-glutamyl transpeptidase activity. Cholestatic hepatocytes were simultaneously isolated and characterized with regard to their ability to synthesize and metabolize bile acids. Incubation of bile ductular epithelial cells with [14C] acetate resulted in rapid labeling of cellular cholesterol, suggesting that these cells have a complete cholesterol biosynthetic pathway. The addition of [4-14C]-cholesterol to bile ductular epithelial cells did not lead to detectable synthesis of [14C]-bile acids. [24-14C]-Cholic acid, [24-14C]-deoxycholic acid, [24-14C]-lithocholic acid and [3H]-ursodeoxycholic acid were individually added to bile ductular epithelial cells and incubated for 24 or 48 hr. Bile acid metabolites were extracted and separated by C-18 reverse-phase high performance liquid chromatography or thin-layer chromatography. Bile ductular epithelial cells conjugated deoxycholic acid, ursodeoxycholic acid and lithcholic acid to glycine and taurine. Surprisingly, no conjugation of cholic acid was detected. Conjugated lithocholic acid was further metabolized to highly polar metabolite(s), possibly β-muricholic acid. In contrast, cholestatic hepatocytes synthesized bile acid from exogenously added cholesterol. In addition, cholestatic hepatocytes converted deoxycholic acid to taurocholic acid and ursodeoxycholic acid and lithocholic acid to tauro-β-muricholic acid. We conclude that bile ductular epithelial cells differ significantly from the hepatocyte in regard to bile acid metabolism. Finally, we provide evidence that bile ductular epithelial cells can be used to study metabolic and transport processes occurring in the biliary tree.(HEPATOLOGY 1990;11:982-988.).