Obesity poses an increased risk of developing metabolic syndrome and closely associated nonalcoholic fatty liver disease, including liver cancer. Satiety hormone leptin-deficient (ob/ob) mice, considered paradigmatic of nutritional obesity, develop hepatic steatosis but are less prone to developing liver tumors. Sustained activation of peroxisome proliferator–activated receptor α (PPARα) in ob/ob mouse liver increases fatty acid oxidation (FAO), which contributes to attenuation of obesity but enhances liver cancer risk. To further evaluate the role of PPARα-regulated hepatic FAO and energy burning in the progression of fatty liver disease, we generated PPARα-deficient ob/ob (PPARα^Δob/ob) mice. These mice become strikingly more obese compared to ob/ob littermates, with increased white and brown adipose tissue content and severe hepatic steatosis. Hepatic steatosis becomes more severe in fasted PPARα^Δob/ob mice as they fail to up-regulate FAO systems. PPARα^Δob/ob mice also do not respond to peroxisome proliferative and mitogenic effects of PPARα agonist Wy-14,643. Although PPARα^Δob/ob mice are severely obese, there was no significant increase in liver tumor incidence, even when maintained on a diet containing Wy-14,643. We conclude that sustained PPARα activation–related increase in FAO in fatty livers of obese ob/ob mice increases liver cancer risk, whereas deletion of PPARα in ob/ob mice aggravates obesity and hepatic steatosis. However, it does not lead to liver tumor development because of reduction in FAO and energy burning.