Fatty acid-induced lipotoxicity plays a critical role in the pathogenesis of nonalcoholic liver disease. Saturated fatty acids and unsaturated fatty acids have differential effects on cell death and steatosis, but the mechanisms responsible for these differences are not known. Using cultured HepG2 cells and primary mouse hepatocytes, we found that unsaturated and saturated fatty acids differentially regulate autophagy and apoptosis. The unsaturated fatty acid, oleic acid, promoted the formation of triglyceride-enriched lipid droplets and induced autophagy but had a minimal effect on apoptosis. In contrast, the saturated fatty acid, palmitic acid, was poorly converted into triglyceride-enriched lipid droplets, suppressed autophagy, and significantly induced apoptosis. Subsequent studies revealed that palmitic acid-induced apoptosis suppressed autophagy by inducing caspase-dependent Beclin 1 cleavage, indicating cross-talk between apoptosis and autophagy. Moreover, our data suggest that the formation of triglyceride-enriched lipid droplets and induction of autophagy are protective mechanisms against fatty acid-induced lipotoxicity. In line with our in vitro findings, we found that high-fat diet-induced hepatic steatosis was associated with autophagy in the mouse liver. Potential modulation of autophagy may be a novel approach that has therapeutic benefits for obesity-induced steatosis and liver injury.