Background and Purpose This study investigates the antifibrotic activities and potential mechanisms of costunolide (COS), a natural sesquiterpene compound. Experimental Approach Rats subjected to bile duct ligation and mice challenged with CCl4 were used to study the antifibrotic effects of COS in vivo. Mouse primary hepatic stellate cells (pHSCs) and human HSC line LX‐2 also served as an in vitro liver fibrosis models. The expression of fibrogenic genes and signaling proteins in the neurogenic locus notch homologue protein 3 (Notch3)–hairy/enhancer of split‐1 (HES1) pathway was examined using western blot and/or real‐time PCR. Notch3 degradation was analysed using immunofluorescence and coimmunoprecipitation. Key Results In animals, COS administration attenuated hepatic histopathological injury and collagen accumulation and reduced the expression of fibrogenic genes. COS time‐ and dose‐dependently suppressed the levels of fibrotic markers in LX‐2 cells and mouse pHSCs. Mechanistic studies showed COS destabilized Notch3 and subsequently inhibited the Notch3–HES1 pathway, thus inhibiting HSC activation. Furthermore, COS blocked the WW domain‐containing protein 2 (WWP2)/protein phosphatase 1G (PPM1G) interaction and enhanced the effect of WWP2 on Notch3 degradation. Conclusions and Implications COS exerted potent antifibrotic effects in vitro and in vivo by disrupting the WWP2/PPM1G complex, promoting Notch3 degradation and inhibiting the Notch3/HES1 pathway. This indicates that COS may be a potential therapeutic candidate for the treatment of liver fibrosis.