Apical Sodium-Dependent Bile Acid Transporter (ASBT) represents a highly efficient conservation mechanism of bile acids via mediating their active transport across the luminal membrane of terminal ileum. To gain insights into the cellular regulation of ASBT, we investigated the association of ASBT with cholesterol and sphingolipid enriched specialized plasma membrane microdomains known as lipid rafts and examined the role of membrane cholesterol in maintaining ASBT function. Human embryonic kidney cells stably transfected with hASBT, human ileal brush border membrane vesicles and human intestinal epithelial Caco-2 cells were utilized for these studies. Floatation experiments on Optiprep density gradient demonstrated the association of ASBT protein with lipid rafts. Disruption of lipid rafts by depletion of membrane cholesterol with methyl--cyclodextrin (MCD) significantly reduced the association of ASBT with lipid rafts which was paralleled by a decrease in ASBT activity in Caco2 and HEK 293 cells treated with MCD. The inhibition in ASBT activity by MCD was blocked in the cells treated with MCD-cholesterol complexes. Kinetic analysis revealed that MCD treatment decreased the V_max of the transporter that was not associated with alteration in the plasma membrane expression of ASBT. Our studies illustrate that cholesterol content of lipid rafts is essential for the optimal activity of ASBT and support the association of ASBT with lipid rafts. These findings suggest a novel mechanism by which ASBT activity may be rapidly modulated by alterations in cholesterol content of plasma membrane and thus have important implications in processes related to maintenance of bile acid and cholesterol homeostasis.