Caffeine is one of the world's most consumed drugs. Recently, several studies showed that its consumption is associated with lower risk for nonalcoholic fatty liver disease (NAFLD), an obesity‐related condition that recently has become the major cause of liver disease worldwide. Although caffeine is known to stimulate hepatic fat oxidation, its mechanism of action on lipid metabolism is still not clear. Here, we show that caffeine surprisingly is a potent stimulator of hepatic autophagic flux. Using genetic, pharmacological, and metabolomic approaches, we demonstrate that caffeine reduces intrahepatic lipid content and stimulates β‐oxidation in hepatic cells and liver by an autophagy‐lysosomal pathway. Furthermore, caffeine‐induced autophagy involved down‐regulation of mammalian target of rapamycin signaling and alteration in hepatic amino acids and sphingolipid levels. In mice fed a high‐fat diet, caffeine markedly reduces hepatosteatosis and concomitantly increases autophagy and lipid uptake in lysosomes. Conclusion: These results provide novel insight into caffeine's lipolytic actions through autophagy in mammalian liver and its potential beneficial effects in NAFLD. (Hepatology 2014;59:1366‐1380)