Biliary atresia, the most common indication for pediatric liver transplantation, is a fibrotic disease of unknown etiology affecting the extrahepatic bile ducts of newborns. The recently described toxin biliatresone causes lumen obstruction in mouse cholangiocyte spheroids and represents a new model of biliary atresia. The goal of this study was to determine the cellular changes caused by biliatresone in mammalian cells that ultimately lead to biliary atresia and extrahepatic fibrosis. We treated mouse cholangiocytes in three‐dimensional (3D) spheroid culture and neonatal extrahepatic duct explants with biliatresone and compounds that regulate glutathione (GSH). We examined the effects of biliatresone on SOX17 levels and determined the effects of Sox17 knockdown on cholangiocytes in 3D culture. We found that biliatresone caused disruption of cholangiocyte apical polarity and loss of monolayer integrity. Spheroids treated with biliatresone had increased permeability as shown by rhodamine efflux within 5 hours compared with untreated spheroids, which retained rhodamine for longer than 12 hours. Neonatal bile duct explants treated with the toxin showed lumen obstruction with increased subepithelial staining for α‐smooth muscle actin and collagen, consistent with fibrosis. Biliatresone caused a rapid and transient decrease in GSH, which was both necessary and sufficient to mediate its effects in cholangiocyte spheroid and bile duct explant systems. It also caused a significant decrease in cholangiocyte levels of SOX17, and Sox17 knockdown in cholangiocyte spheroids mimicked the effects of biliatresone. Conclusion: Biliatresone decreases GSH and SOX17 in mouse cholangiocytes. In 3D cell systems, this leads to cholangiocyte monolayer damage and increased permeability; in extrahepatic bile duct explants, it leads to disruption of the extrahepatic biliary tree and subepithelial fibrosis. This mechanism may be important in understanding human biliary atresia. (Hepatology 2016;64:880‐893)