Obesity, a major health concern, results from an imbalance between energy intake and expenditure. Leptin-deficient ob/ob mice are paradigmatic of obesity, resulting from excess energy intake and storage. Mice lacking acyl-CoA oxidase 1 (Acox1), the first enzyme of the peroxisomal fatty acid β-oxidation system, are characterized by increased energy expenditure and a lean body phenotype caused by sustained activation of peroxisome proliferator-activated receptor α (PPARα) by endogenous ligands in liver that remain unmetabolized in the absence of Acox1. We generated ob/ob mice deficient in Acox1 (Acox1(-/-)) to determine how the activation of PPARα by endogenous ligands might affect the obesity of ob/ob mice. In contrast to Acox1(-/-) (14.3±1.2 g at 6 mo) and the Acox1-deficient (ob/ob) double-mutant mice (23.8±4.6 g at 6 mo), the ob/ob mice are severely obese (54.3±3.2 g at 6 mo) and had significantly more (P<0.01) epididymal fat content. The resistance of Acox1(-/-)/ob/ob mice to obesity is due to increased PPARα-mediated up-regulation of genes involved in fatty acid oxidation in liver. Activation of PPARα in Acox1-deficient ob/ob mice also reduces serum glucose and insulin (P<0.05) and improves glucose tolerance and insulin sensitivity. Further, PPARα activation reduces hepatic steatosis and increases hepatocellular regenerative response in Acox1(-/-)/ob/ob mice at a more accelerated pace than in mice lacking only Acox1. However, Acox1(-/-)/ob/ob mice manifest hepatic endoplasmic reticulum (ER) stress and also develop hepatocellular carcinomas (8 of 8 mice) similar to those observed in Acox1(-/-) mice (10 of 10 mice), but unlike in ob/ob (0 of 14 mice) and OB/OB (0 of 6 mice) mice, suggesting that superimposed ER stress and PPARα activation contribute to carcinogenesis in a fatty liver. Finally, absence of Acox1 in ob/ob mice can impart resistance to high-fat diet (60% fat)-induced obesity, and their liver had significantly (P<0.01) more cell proliferation. These studies with Acox1(-/-)/ob/ob mice indicate that sustained activation of lipid-sensing nuclear receptor PPARα attenuates obesity and restores glucose homeostasis by ameliorating insulin resistance but increases the risk for liver cancer development, in part related to excess energy combustion.