Sestrin 3 (Sesn3) belongs to the three‐member sestrin protein family. Sestrins have been implicated in antioxidative stress, adenosine monophosphate–activated protein kinase and mammalian target of rapamycin signal transduction, and metabolic homeostasis. However, the role of Sesn3 in the development of nonalcoholic steatohepatitis (NASH) has not been previously studied. In this work, we generated Sesn3 whole‐body knockout and liver‐specific transgenic mice to investigate the hepatic function of Sesn3 in diet‐induced NASH. With only 4 weeks of dietary treatment, Sesn3 knockout mice developed severe NASH phenotype as characterized by hepatic steatosis, inflammation, and fibrosis. Strikingly, after 8‐week feeding with a NASH‐inducing diet, Sesn3 transgenic mice were largely protected against NASH development. Transcriptomic analysis revealed that multiple extracellular matrix–related processes were up‐regulated, including transforming growth factor β (TGF‐β) signaling and collagen production. Further biochemical and cell biological analyses have illustrated a critical control of the TGF‐β–mothers against decapentaplegic homolog (Smad) pathway by Sesn3 at the TGF‐β receptor and Smad3 levels. First, Sesn3 inhibits the TGF‐β receptor through an interaction with Smad7; second, Sesn3 directly inhibits the Smad3 function through protein–protein interaction and cytosolic retention. Conclusion: Sesn3 is a critical regulator of the extracellular matrix and hepatic fibrosis by suppression of TGF‐β–Smad3 signaling.