Parenteral nutrition-associated liver disease (PNALD) is a serious complication of PN in infants who do not tolerate enteral feedings, especially those with acquired or congenital intestinal diseases. Yet, the mechanisms underlying PNALD are poorly understood. It has been suggested that a component of soy oil (SO) lipid emulsions in PN solutions, such as plant sterols (phytosterols), may be responsible for PNALD, and that use of fish oil (FO)-based lipid emulsions may be protective. We used a mouse model of PNALD combining PN infusion with intestinal injury to demonstrate that SO-based PN solution causes liver damage and hepatic macrophage activation and that PN solutions that are FO-based or devoid of all lipids prevent these processes. We have furthermore demonstrated that a factor in the SO lipid emulsions, stigmasterol, promotes cholestasis, liver injury, and liver macrophage activation in this model and that this effect may be mediated through suppression of canalicular bile transporter expression (Abcb11/BSEP, Abcc2/MRP2) via antagonism of the nuclear receptors Fxr and Lxr, and failure of up-regulation of the hepatic sterol exporters (Abcg5/g8/ABCG5/8). This study provides experimental evidence that plant sterols in lipid emulsions are a major factor responsible for PNALD and that the absence or reduction of plant sterols is one of the mechanisms for hepatic protection in infants receiving FO-based PN or lipid minimization PN treatment. Modification of lipid constituents in PN solutions is thus a promising strategy to reduce incidence and severity of PNALD.