CYP2E1 is one of the fifty-seven cytochrome P450 genes in the human genome and is highly conserved. CYP2E1 is a unique P450 enzyme because its heme iron is constitutively in the high spin state, allowing direct reduction of, e.g., dioxygen, causing the formation of a variety of reactive oxygen species and reduction of xenobiotics to toxic products. The CYP2E1 enzyme has been the focus of scientific interest due to (i) its important endogenous function in liver homeostasis, (ii) its ability to activate procarcinogens and to convert certain drugs, e.g., paracetamol and anesthetics, to cytotoxic end products, (iii) its unique ability to effectively reduce dioxygen to radical species causing liver injury, (iv) its capability to reduce compounds, often generating radical intermediates of direct toxic or indirect immunotoxic properties and (v) its contribution to the development of alcoholic liver disease, steatosis and NASH. In this overview, we present the discovery of the enzyme and studies in humans, 3D liver systems and genetically modified mice to disclose its function and clinical relevance. Induction of the CYP2E1 enzyme either by alcohol or high-fat diet leads to increased severity of liver pathology and likelihood to develop ALD and NASH, with subsequent influence on the occurrence of hepatocellular cancer. Thus, fat-dependent induction of the enzyme might provide a link between steatosis and fibrosis in the liver. We conclude that CYP2E1 has many important physiological functions and is a key enzyme for hepatic carcinogenesis, drug toxicity and liver disease.