Accumulation of cytoplasmic triacylglycerol (TG) underlies hepatic steatosis, a major cause of cirrhosis. The pathways of cytoplasmic TG metabolism are not well known in hepatocytes, but evidence suggests an important role in lipolysis for adipose triglyceride lipase (ATGL). We created mice with liver-specific inactivation of Pnpla2, the ATGL gene. These ATGLLKO mice had severe progressive periportal macrovesicular and pericentral microvesicular hepatic steatosis (73, 150, and 226 lmol TG/g liver at 4, 8, and 12 months, respectively). However, plasma levels of glucose, TG, and cholesterol were similar to those of controls. Fasting 3-hydroxybutyrate level was normal, but in thin sections of liver, beta oxidation of palmitate was decreased by one-third in ATGLLKO mice compared with controls. Tests of very low-density lipoprotein production, glucose, and insulin tolerance and gluconeogenesis from pyruvate were normal. Plasma alanine aminotransferase levels were elevated in ATGLLKO mice, but histological estimates of inflammation and fibrosis and messenger RNA (mRNA) levels of tumor necrosis factor-a and interleukin-6 were similar to or lower than those in controls. ATGLLKO cholangiocytes also showed cytoplasmic lipid droplets, demonstrating that ATGL is also a major lipase in cholangiocytes. There was a 50-fold reduction of hepatic diacylglycerol acyltransferase 2 mRNA level and a 2.7-fold increase of lipolysosomes in hepatocytes (P < 0.001), suggesting reduced TG synthesis and increased lysosomal degradation of TG as potential compensatory mechanisms. Conclusion: Compared with the hepatic steatosis of obesity and diabetes, steatosis in ATGL deficiency is well tolerated metabolically. ATGLLKO mice will be useful for studying the pathophysiology of hepatic steatosis. (HEPATOLOGY 2011;54:122-132)