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Mycobacterium tuberculosis (Mtb) and Mycobacterium smegmatis (Msmeg) can grow on cholesterol as the sole carbon source. In Mtb the utilization of cholesterol can be initiated by CYP125A1 or CYP142A1 and in Msmeg by the orthologous CYP125A3 and CYP142A2. Double knockout of the two enzymes in Mtb prevents its growth on cholesterol, but the double knockout of Msmeg is still able to grow, albeit at a slower rate. We report here that Msmeg has a third enzyme, CYP125A4, that also oxidizes cholesterol, although it has a much higher activity for the oxidation of 7α-hydroxycholesterol. The ability of Msmeg CYP125A4 (and Mtb CYP125A1) to oxidize 7α-hydroxycholesterol is due, at least in part, to the presence of a smaller amino acid side chain facing C-7 of the sterol substrate than in CYP125A3. The ability to oxidize 7-substituted steroids broadens the range of sterol carbon sources for growth, but even more importantly in Mtb, additional biological effects are possible due to the potent immunomodulatory activity of 7α,26-dihydroxycholesterol.