The aim of this project was to improve the Aspergillus terreus strain and pretreatment of sugarcane bagasse as carrier substrate for bulk production of lovastatin, a cholesterol-lowering drug, in solid state fermentation. Sugarcane bagasse was treated with alkali (1–3% NaOH) for the conversion of complex polysaccharides into simple sugars for better utilization of carrier substrate by microorganism for maximum lovastatin production. Ethidium bromide (time of exposure 30–180 min) was used to induce mutation in Aspergillus terreus and the best mutant was selected on the basis of inhibition zone appeared on petri plates. Fermented lovastatin was quantified by high-performance liquid chromatography. The fermented lovastatin, produced by parent and mutant Aspergillus terreus strain, was checked on body weight, blood glucose and serum cholesterol, ALT, AST, HDL-C, LDL-C, TG and TC levels of rats for their cholesterol lowering capacity. Our results indicate that selected strain along with 2% NaOH treated sugar cane bagasse was best suitable for bulk production of lovastatin by fermentation and fermented lovastatin effectively lower the cholesterol level of rats.