The inclusion complex of hydroxypropyl-β-cyclodextrin (HBβCD) and phytosterols (PSs) was prepared and characterized by thermogravimetric analysis (TGA) and infrared (IR) spectroscopy. Biotransformation of the inclusion complex of phytosterols and hydroxypropylβ-cyclodextrin (PSs-HBβCD) by Mycobacterium neoaurum to 1,4-androstadiene-3,17-dione and 4-androstene-3,17-dione [AD(D)] was studied. The TGA and IR results indicated that the thermal stability of PSs was improved in the complex with HBβCD. Biotransformation improved the solubility of PSs in the aqueous medium a lot because the AD(D) production was increased remarkably compared with the control, but growth of the bacteria was inhibited in the presence of HBβCD. The optimal inclusion ratio, ultrasonic treating time, dosage, and time of addition of PSs-HBβCD complexe were found to be 2:1, 10 min, 1.5 g/30 ml medium, and 48 h after incubation, respectively. This inclusion technique not only increased the availability of the substrates for the microorganisms, but also the capability of these microorganisms to produce AD(D) from PSs.