Farnesoid X receptor (FXR) is a member of the nuclear receptor family of ligand-regulated transcription factors that regulates bile acid, lipid and glucose metabolism. Bile acids are the endogenous FXR ligands. Bile acid binding to FXR induces association with FXR response element sequences (FXREs), and promotes selective recruitment of coregulator proteins via induced structural changes in the activation function AF-2 surface, i.e. the site of coregulator binding. However, there is a poor understanding of how FXR is allosterically regulated by bile acid, which acts as a molecular switch to initiate critical long-range of transcriptional events. The goal of this work is to understand how minor structural modifications in bile acids give rise to differential FXR transcriptional activity. We used dual luciferase assays to determine how bile acids modulate FXR DNA binding preferences for a a wide range of FXREs. We also used molecular dynamics (MD) simulations to study the effect of the bile acids on AF-2 signaling. We have identified key residues that mediate specific allosteric communication pathways in FXR, and the mutations of the key residues in FXR-LBD affects bile acid-specific FXR transcriptional activities, confirming their roles in ligand-AF-2 allostery. These findings can further our understanding of how bile acids impact FXR promoter selectivity and coregulator recruitment.