Hepatic lipid overloading mainly in the form of triglycerides is considered a prerequisite for the development of nonalcoholic fatty liver disease (NAFLD). However, triglyceride accumulation in the liver in response to lipid overflow may represent a protective mechanism against lipotoxicity. Our aims were to assess the fundamental cellular mechanisms that link lipid compartmentation in hepatocytes to liver damage and disease progression in NAFLD by using both in vivo dietary models of NAFLD and in vitro cell models of lipid overloading. Exposure of murine or human hepatocytes to monounsaturated fatty acids (MUFAs) resulted in lipid accumulation without changes in cell viability. In contrast, cell incubation with saturated fatty acids (SFAs) significantly decreased cell viability and increased caspase activation and apoptosis, with only minor lipid droplet accumulation. Genetic or pharmacological inhibition of stearoyl-CoA desaturase-1 (SCD1), the enzyme that converts SFA to MUFA, sensitized cells to SFA-induced apoptosis. Hepatic SCD1 expression increased in experimental steatosis resulting from high fat diet and decreased in a methionine-choline-deficient (MCD) dietary model of steatohepatitis resulting in the latter situation in significantly increased hepatic SFA levels. SCD1(-/-) mice on the MCD diet had decreased steatosis and markedly increased hepatocellular apoptosis, liver injury, and fibrosis compared with the SCD1(+/+), whereas MUFA feeding prevents the MCD-induced injury. In conclusion, this study suggests hepatic SCD1 plays a key role in prevention of steatohepatitis by partitioning excess lipid into MUFA that can be safely stored. This concept has important implications for the development of novel treatment strategies for patients with this condition.