Si-miao-yong-an decoction (SMYAD), a traditional Chinese medicine formula, significantly reduced plasma TC, LDL-c levels and increased HDL-c level in hyperlipidemia rats. Liver function test and tissue section examination indicated that SMYAD improved liver function and reduced fat accumulation in hyperlipidemia rat liver. A LC–MS/MS method was established and well validated to evaluate major bile acids derived from cholesterol metabolism through the classic neutral pathway and the alternative acidic pathway (cholic acid, chenodeoxycholic acid and their taurine and glycine conjugates) in liver and plasma. Increased total 6 bile acids concentrations in both liver and plasma were observed after oral administration of 12 g/kg/d, 24 g/kg/d and 36 g/kg/d of SMYAD in a dose dependent manner which contributed to eliminate of cholesterol. Cholic acid, taurocholic acid and glycocholic acid act as the main products of bile acid classic neutral synthesis pathway and show sharp increase (p < 0.01) after treatment of SMYAD at dosage of 24–36 g/kg/d. For liver samples, taurocholic acid level act as the largest growth section, while in plasma samples, cholic acid act as the largest growth section after SMYAD treatment, compared with Model group. By contrast, the main products of alternative acidic pathway (chenodeoxycholic acid and its glycine and taurine conjugates) show no significant increase after treatment of SMYAD. In conclusion, the cholesterol lowing effect of SMYAD may be related with the accelerated transformation of cholesterol into bile acids through the classic neutral pathway.