Bariatric surgical procedures, such as vertical sleeve gastrectomy (VSG), are at present the most effective therapy for the treatment of obesity, and are associated with considerable improvements in co-morbidities, including type-2 diabetes mellitus. The underlying molecular mechanisms contributing to these benefits remain largely undetermined, despite offering the potential to reveal new targets for therapeutic intervention. Substantial changes in circulating total bile acids are known to occur after VSG. Moreover, bile acids are known to regulate metabolism by binding to the nuclear receptor FXR (farsenoid-X receptor, also known as NR1H4). We therefore examined the results of VSG surgery applied to mice with diet-induced obesity and targeted genetic disruption of FXR. Here we demonstrate that the therapeutic value of VSG does not result from mechanical restriction imposed by a smaller stomach. Rather, VSG is associated with increased circulating bile acids, and associated changes to gut microbial communities. Moreover, in the absence of FXR, the ability of VSG to reduce body weight and improve glucose tolerance is substantially reduced. These results point to bile acids and FXR signalling as an important molecular underpinning for the beneficial effects of this weight-loss surgery. Bariatric surgical procedures, such as vertical sleeve gastrectomy (VSG), are the most effective therapy for the treatment of obesity; now bile acids, and the presence of the nuclear bile acid receptor FXR, are shown to underpin the mechanism of VSG action, and the ability of VSG to reduce body weight and improve glucose tolerance is substantially reduced if FXR is absent. The use and misuse of invasive surgery to control obesity and related conditions is much debated. Whatever its merits, the associated costs and risks mean that it is inappropriate in many cases. This study challenges the notion that such surgery elicits weight loss solely by making it physically difficult to consume or absorb calories, and raises the prospect that it may be possible to develop therapies that achieve the same ends without the need for a scalpel. Vertical sleeve gastrectomy (VSG), in which some 80% of the stomach is removed to create a gastric 'sleeve' contiguous with the oesophagus and duodenum, is known to induce loss of body weight and fat mass, and improves glucose tolerance in humans and rodents. Randy Seeley and colleagues show here that the therapeutic effect of VSG in mice arises not from the mechanical restrictions of a smaller stomach but from the associated increase in the levels of circulating bile acids and changes to gut microbial communities. Moreover, in the absence of nuclear bile acid receptor FXR, the ability of VSG to reduce body weight and improve glucose tolerance is substantially reduced.