1. The activity of cholesterol 7 alpha-hydroxylase found in the 10000 x g supernatant prepared from isolated rat liver cells was comparable to that found with microsomal fractions from whole liver. 2. The activity of cholesterol 7 alpha-hydroxylase from cells prepared from livers of rats fed the bile salt sequestering agent cholestyramine was 2--3 fold higher than the activity of this enzyme found in cells isolated from animals on a control diet. 3. On incubation of hepatocytes in a suitable medium at 37 degrees C, cholesterol 7 alpha-hydroxylase activity declined to about 50% of its original value after three hours despite the fact that the cells retained a high level of viability over 5--6 h as measured by various sensitive criteria. 4. The decrease in cholesterol 7 alpha-hydroxylase activity was observed whether cholestyramine was included in the diet or excluded from the diet of the animals used as sources of the liver cells. 5. The change in cholesterol 7 alpha-hydroxylase activity seen on incubation of the cells was not affected by including in the incubation medium additional nutrients such as amino acids, the glucocorticoid cortisol, phospholipid dispersions, or sodium taurocholate. 6. Changing the incubation medium in which the cells were suspended at regular intervals during the three-hour experiments failed to prevent this decline in the cholesterol 7 alpha-hydroxylase activity during the incubation of these cells. 7. Although isolated liver cells have been shown to lose glutathione on incubation, addition of physiological levels of this compound did not prevent the decline in cholesterol 7 alpha-hydroxylase activity. 8. Cycloheximide addition to the incubation medium accelerated the decrease in cholesterol 7 alpha-hydroxylase activity. This suggests that some protein synthesis associated with cholesterol 7 alpha-hydroxylase activity occurs during the incubation and inhibition of such protein synthesis accelerated the decrease in this enzyme activity. 9. The cytochrome P-450 content of the 10000 x g supernatant prepared from hepatocytes declined slowly to about 65% of its original value after four hours of incubation at 37 degrees C. This decline in the 10000 x g supernatant cytochrome P-450 content may partly explain the observed loss of cholesterol 7 alpha-hydroxylase activity during incubations in vitro. 10. Isolated hepatocytes rapidly take up radioactively labelled sodium cholate. Subsequent excretion of the radioactivity was also very rapid even in the presence of large amounts of this bile salt in the medium.