Dysregulation of lipid metabolism is frequently associated with inflammatory conditions. The mechanism of this association is still not clearly defined. Recently, we identified a nuclear oxysterol, 25-hydroxycholesterol-3-sulfate (25HC3S), as an important regulatory molecule involved in lipid metabolism in hepatocytes. The present study shows that 25HC3S and its precursor, 25-hydroxycholesterol (25HC), diametrically regulate lipid metabolism and inflammatory response via LXR/SREBP-1 and IkappaBalpha/NFkappaB signaling in hepatocytes. Addition of 25HC3S to primary rat hepatocytes decreased nuclear LXR and SREBP-1 protein levels, down-regulated their target genes, acetyl CoA carboxylase 1 (ACC1), fatty acid synthase (FAS), and SREBP-2 target gene HMG reductase, key enzymes involved in fatty acid and cholesterol biosynthesis. 25HC3S reduced TNFalpha-induced inflammatory response by increasing cytoplasmic IkappaBalpha levels, decreasing NFkappaB nuclear translocation, and consequently repressing expression of NFkappaB-dependent genes, IL-1beta, TNFalpha, and TRAF1. NFkappaB-dependent promoter reporter gene assay showed that 25HC3S suppressed luciferase activity in the hepatocytes. In contrast, 25HC elicited opposite effects by increasing nuclear LXR and SREBP-1 protein levels, and by increasing ACC1 and FAS mRNA levels. 25HC also decreased cytoplasmic IkappaBalpha levels and further increased TNFalpha-induced NFkappaB activation. The current findings suggest that 25HC and 25HC3S serve as potent regulators in cross-talk of lipid metabolism and inflammatory response in the hepatocytes.