Steatosis in the liver is a common feature of obesity and type 2 diabetes and the precursor to the development of nonalcoholic steatohepatitis (NASH), cirrhosis, and liver failure. It has been shown previously that inhibiting glycosphingolipid (GSL) synthesis increases insulin sensitivity and lowers glucose levels in diabetic rodent models. Here we demonstrate that inhibiting GSL synthesis in ob/ob mice not only improved glucose homeostasis but also markedly reduced the development of hepatic steatosis. The ob/ob mice were treated for 7 weeks with a specific inhibitor of glucosylceramide synthase, the initial enzyme involved in the synthesis of GSLs. Besides lowering glucose and hemoglobin A1c (HbA1c) levels, drug treatment also significantly reduced the liver/body weight ratio, decreased the accumulation of triglycerides, and improved several markers of liver pathology. Drug treatment reduced liver glucosylceramide (GL1) levels in the ob/ob mouse. Treatment also reduced the expression of several genes associated with hepatic steatosis, including those involved in lipogenesis, gluconeogenesis, and inflammation. In addition, inhibiting GSL synthesis in diet‐induced obese mice both prevented the development of steatosis and partially reversed preexisting steatosis. Conclusion: These data indicate that inhibiting GSL synthesis ameliorates the liver pathology associated with obesity and diabetes, and may represent a novel strategy for treating fatty liver disease and NASH. (HEPATOLOGY 2009.)