Numerous studies in humans link a nonsynonymous genetic polymorphism (I148M) in adiponutrin (ADPN) to various forms of fatty liver disease and liver cirrhosis. Despite its high clinical relevance, the molecular function of ADPN and the mechanism by which I148M variant affects hepatic metabolism are unclear. Here we show that ADPN promotes cellular lipid synthesis by converting lysophosphatidic acid (LPA) into phosphatidic acid. The ADPN-catalyzed LPA acyltransferase (LPAAT) reaction is specific for LPA and long-chain acyl-CoAs. Wild-type mice receiving a high-sucrose diet exhibit substantial upregulation of Adpn in the liver and a concomitant increase in LPAAT activity. In Adpn-deficient mice, this diet-induced increase in hepatic LPAAT activity is reduced. Notably, the I148M variant of human ADPN exhibits increased LPAAT activity leading to increased cellular lipid accumulation. This gain of function provides a plausible biochemical mechanism for the development of liver steatosis in subjects carrying the I148M variant.