The prevalence of fatty liver is rising in association with the global increase in obesity and type 2 diabetes. In the past, simple steatosis was regarded as benign, but the presence of another liver disease may provide a synergistic combination of steatosis, cellular adaptation, and oxidative damage that aggravates liver injury. In this review, a major focus is on the role of steatosis as a co‐factor in chronic hepatitis C (HCV), where the mechanisms promoting fibrosis and the effect of weight reduction in minimizing liver injury have been most widely studied. Steatosis, obesity, and associated metabolic factors may also modulate the response to alcohol‐ and drug‐induced liver disease and may be risk factors for the development of hepatocellular cancer. The pathogenesis of injury in obesity‐related fatty liver disease involves a number of pathways, which are currently under investigation. Enhanced oxidative stress, increased susceptibility to apoptosis, and a dysregulated response to cellular injury have been implicated, and other components of the metabolic syndrome such as hyperinsulinemia and hyperglycemia are likely to have a role. Fibrosis also may be increased as a by‐product of altered hepatocyte regeneration and activation of bipotential hepatic progenitor cells. In conclusion, active management of obesity and a reduction in steatosis may improve liver injury and decrease the progression of fibrosis. (HEPATOLOGY 2005;42:5–13.)