Hepatic TANK (TRAF family member associated NFκB activator)-binding kinase 1 (TBK1) activity is increased during obesity, and administration of a TBK1 inhibitor reduces fatty liver. Surprisingly, liver-specific TBK1 knockout in mice produces fatty liver by reducing fatty acid oxidation. TBK1 functions as a scaffolding protein to localize acyl-CoA synthetase long-chain family member 1 (ACSL1) to mitochondria, which generates acyl-CoAs that are channeled for β-oxidation. TBK1 is induced during fasting and maintained in the unphosphorylated, inactive state, enabling its high affinity binding to ACSL1 in mitochondria. In TBK1-deficient liver, ACSL1 is shifted to the endoplasmic reticulum to promote fatty acid re-esterification in lieu of oxidation in response to fasting, which accelerates hepatic lipid accumulation. The impaired fatty acid oxidation in TBK1-deficient hepatocytes is rescued by the expression of kinase-dead TBK1. Thus, TBK1 operates as a rheostat to direct the fate of fatty acids in hepatocytes, supporting oxidation when inactive during fasting and promoting re-esterification when activated during obesity.