Aberrant accumulation of lipids in the liver ("fatty liver" or hepatic steatosis) represents a hallmark of the metabolic syndrome and is tightly associated with obesity, type II diabetes, starvation, or glucocorticoid (GC) therapy. While fatty liver has been connected with numerous abnormalities of liver function, the molecular mechanisms of fatty liver development remain largely enigmatic. Here we show that liver-specific disruption of glucocorticoid receptor (GR) action improves the steatotic phenotype in fatty liver mouse models and leads to the induction of transcriptional repressor hairy enhancer of split 1 (Hes1) gene expression. The GR directly interferes with Hes1 promoter activity, triggering the recruitment of histone deacetylase (HDAC) activities to the Hes1 gene. Genetic restoration of hepatic Hes1 levels in steatotic animals normalizes hepatic triglyceride (TG) levels. As glucocorticoid action is increased during starvation, myotonic dystrophy, and Cushing's syndrome, the inhibition of Hes1 through the GR might explain the fatty liver phenotype in these subjects.