It raises the prospect that taking cholesterol-lowering drugs called statins could prevent cancer, reports BBC.
The work, published in the journal Science, helps explain why obesity is a major risk factor for the disease.
However, cancer charities cautioned that it was too soon to advise women to take statins.
Obesity has been linked with many cancers including those of the breast, bowel and womb.
The fat in overweight people can pump out hormones, such as oestrogen, which drive the growth of cancers.
A team at Duke University Medical Centre, in the US, showed that cholesterol was having a similar effect.
Cholesterol is broken down by the body into 27HC, which can mimic oestrogen and produce the same effect as the hormone in some tissues.
Experiments on mice showed that a high fat diet increased levels of 27HC in the blood and led to tumours that were 30% larger than in mice on a normal diet.
Tumours were also more likely to spread. And human breast cancer tissue grew more quickly in the laboratory when it was fed 27HC.
One of the researchers Prof Donald McDonnell said: "A lot of studies have shown a connection between obesity and breast cancer, and specifically that elevated cholesterol is associated with breast cancer risk, but no mechanism has been identified.
"What we have now found is a molecule - not cholesterol itself, but an abundant metabolite of cholesterol - called 27HC that mimics the hormone oestrogen and can independently drive the growth of breast cancer."
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