Freshly isolated rat hepatocytes were used to examine the effects of dibutyryl cyclic AMP on the incorporation of 14C-acetate and 14C-cholesterol into bile acids. After an initial lag period, both precursors were incorporated into cholic and chenodeoxycholic acids at a linear rate for the subsequent 60 min. An apparent stimulation of bile acid formation from 14C-acetate by dibutyryl cyclic AMP was complicated by the concomitant inhibition of cholesterol synthesis. In experiments with 14C-cholesterol, dibutyryl cyclic AMP (1 mM) increased the labeled cholic and chenodeoxycholic acids in the medium by 83 and 224%, respectively, but cellular levels of labeled bile acids were unchanged. As a result, the nucleotide stimulated the overall incorporation of 14C-cholesterol into cholic acid by 39% and into chenodeoxycholic acid by 123%. The mean ratio of labeled cholic to chenodeoxycholic acid declined from 55:45 in control cells to 41:59 in cells incubated with dibutyryl cyclic AMP. The results demonstrate that label incorporation can be used to study the regulation of bile acid synthesis in isolated hepatocytes. We propose that dibutyryl cyclic AMP enhanced bile acid production by phosphorylating, and thus stimulating the activity of, cholesterol 7 alpha-hydroxylase, the rate-limiting enzyme in bile acid synthesis.