Cholestyramine removes bile acids from the body by forming insoluble complexes with bile acids in the intestine, which are then excreted in the feces. When bile acids are excreted, plasma cholesterol is converted to bile acid to normalize bile acid levels. This conversion of cholesterol into bile acids lowers plasma cholesterol concentrations.

Bile acid sequestrants such as cholestyramine are primarily used to treat hypercholesterolemia, but can also be used to treat the pruritus, or itching, that often occurs during liver failure, due to the liver's inability to eliminate bile.

Cholestyramine is also used to prevent diarrhea in Crohn's disease patients who have undergone ileal resection. The terminal portion of the small bowel (ileum) is where bile acids are reabsorbed. When this section is removed, the bile acids pass into the large bowel and attract water due to their osmotic effect, causing diarrhea. Cholestyramine prevents this increase in water by making the bile acids insoluble and osmotically inactive. Post-ileal resection patients should use this medication cautiously, however, because bowel surgery heightens the occurrence of small-bowel obstructions, and there are several reports in the medical literature of Cholestyramine causing bowel obstructions. Cholestyramine can also be used in the treatment of Clostridium difficile infections, in order to adsorb toxins A and B, and reduce the diarrhea and other symptoms that these toxins cause, however, because it is not an anti-infective it is used in concert with vancomycin. Cholestyramine can also be used in the control of the diarrhea form of Irritable Bowel Syndrome (IBS-D). It is also used in the "wash out" procedure in patients taking leflunomide to aid drug elimination in the case of severe side effects caused by leflunomide.

Cholestyramine is also useful in treating post-vagotomy diarrhea. ^[1]