AbstractDysregulation 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 IκBα/NFκB 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 TNFα‐induced inflammatory response by increasing cytoplasmic IκBα levels, decreasing NFκB nuclear translocation, and consequently repressing expression of NFκB‐dependent genes, IL‐1β, TNFα, and TRAF1. NFκB‐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 IκBα levels and further increased TNFα‐induced NFκB 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.