The endoplasmic reticulum-associated NADH cytochrome b(5) oxidoreductase (Ncb5or) is widely distributed in animal tissues. Ncb5or(-/-) mice develop diabetes at age 7 weeks and have increased susceptibility to the diabetogenic oxidant streptozotocin. Ncb5or deficiency also results in lipoatrophy and increased hepatocyte sensitivity to cytotoxic effects of saturated fatty acids. Here we investigate the mechanisms of these phenomena in prediabetic Ncb5or(-/-) mice and find that, despite increased rates of fatty acid uptake and synthesis and higher stearoyl-CoA desaturase (SCD) expression, Ncb5or(-/-) liver accumulates less triacylglycerol (TAG) than wild type (WT). Increased fatty acid catabolism and oxidative stress are evident in Ncb5or(-/-) hepatocytes and reflect increased mitochondrial content, peroxisome proliferator-activated receptor-γ coactivator 1α (PGC-1α) expression, fatty acid oxidation rates, oxidative stress response gene expression, and oxidized glutathione content. Ncb5or(-/-) hepatocytes readily incorporate exogenous fatty acids into TAG but accumulate more free fatty acids (FFA) and have greater palmitate-induced oxidative stress responses and cell death than WT, all of which are alleviated by co-incubation with oleate via TAG channeling. A high fat diet rich in palmitate and oleate stimulates both lipogenesis and fatty acid catabolism in Ncb5or(-/-) liver, resulting in TAG levels similar to WT but increased intracellular FFA accumulation. Hepatic SCD-specific activity is lower in Ncb5or(-/-) than in WT mice, although Ncb5or(-/-) liver has a greater increase in Scd1 mRNA and protein levels. Together, these findings suggest that increased FFA accumulation and catabolism and oxidative stress are major consequences of Ncb5or deficiency in liver.