Hepatic very low density lipoprotein (VLDL) overproduction is a characteristic feature of diabetes and an important contributor to diabetic dyslipidemia. Hepatic sortilin 1 (Sort1), a cellular trafficking receptor, is a novel regulator of serum lipid metabolism and reduces serum cholesterol and triglycerides by inhibiting hepatic apolipoprotein B production. Elevated circulating free fatty acids play key roles in hepatic VLDL overproduction and the development of dyslipidemia. This study investigated the regulation of hepatic Sort1 in obesity and diabetes and the potential implications in diabetic dyslipidemia. Results showed that hepatic Sort1 protein was markedly decreased in mouse models of type-I and type-II diabetes and in human individuals with obesity and liver steatosis, while increasing hepatic Sort1 expression reduced serum cholesterol and triglycerides in mice. Mechanistic studies showed that the saturated fatty acid palmitate activated extracellular signal-regulated kinase (ERK) and inhibited Sort1 protein by mechanisms involving Sort1 protein ubiquitination and degradation. Consistently, hepatic ERK signaling was activated in diabetic mice, while blocking ERK signaling by an ERK inhibitor increased hepatic Sort1 protein in mice. These results suggest that increased saturated fatty acids down-regulate liver Sort1 protein, which may contribute to the development of dyslipidemia in obesity and diabetes.