CCAAT/enhancer-binding protein beta (C/EBPbeta) plays a key role in initiation of adipogenesis in adipose tissue and gluconeogenesis in liver; however, the role of C/EBPbeta in hepatic lipogenesis remains undefined. Here we show that C/EBPbeta inactivation in Lepr(db/db) mice attenuates obesity, fatty liver, and diabetes. In addition to impaired adipogenesis, livers from C/EBPbeta(-/-) x Lepr(db/db) mice had dramatically decreased triglyceride content and reduced lipogenic enzyme activity. C/EBPbeta deletion in Lepr(db/db) mice down-regulated peroxisome proliferator-activated receptor gamma2 (PPARgamma2) and stearoyl-CoA desaturase-1 and up-regulated PPARalpha independent of SREBP1c. Conversely, C/EBPbeta overexpression in wild-type mice increased PPARgamma2 and stearoyl-CoA desaturase-1 mRNA and hepatic triglyceride content. In FAO cells, overexpression of the liver inhibiting form of C/EBPbeta or C/EBPbeta RNA interference attenuated palmitate-induced triglyceride accumulation and reduced PPARgamma2 and triglyceride levels in the liver in vivo. Leptin and the anti-diabetic drug metformin acutely down-regulated C/EBPbeta expression in hepatocytes, whereas fatty acids up-regulate C/EBPbeta expression. These data provide novel evidence linking C/EBPbeta expression to lipogenesis and energy balance with important implications for the treatment of obesity and fatty liver disease.