Patatin-Like Phospholipase Domain Containing 2 (PNPLA2)/Adipose Triglyceride Lipase (ATGL) and PNPLA3/Adiponutrin are close paralogs that appear to have opposite functions on triacylglycerol (TAG) mobilization and storage. PNPLA2/ATGL is a major triglyceride lipase in adipose tissue and liver, whereas a common human variant of PNPLA3, I148M, greatly increases risk of hepatosteatosis. Nonetheless, the function of PNPLA3 and the mechanism by which the I148M variant promotes TAG accumulation are poorly understood. Here we demonstrate that PNPLA3 strongly interacts with α/β hydrolase domain-containing 5 (ABHD5/CGI-58), an essential co-activator of PNPLA2/ATGL. Molecular imaging experiments demonstrate that PNPLA3 effectively competes with PNPLA2/ATGL for ABHD5, and that PNPLA3 I148M is more effective in this regard. Inducible overexpression of PNPLA3 I148M greatly suppressed PNPLA2/ATGL-dependent lipolysis and triggered massive TAG accumulation in brown adipocytes, and these effects were dependent on ABHD5. The interaction of PNPLA3 and ABHD5 can be regulated by fatty acid supplementation and synthetic ABHD5 ligands, raising the possibility that this interaction might be targeted for treatment of fatty liver disease.