Abstract Nonalcoholic fatty liver disease (NAFLD) is associated with the development of metabolic syndromes and hepatocellular carcinoma (HCC). Cholesterol accumulation is related to NAFLD, whereas its detailed mechanism is not fully understood. Previously, we reported that glycine N-methyltransferase (GNMT) knockout (Gnmt-/-) mice develop chronic hepatitis and HCC. In this study, we showed that Gnmt-/- mice had hyperlipidemia and steatohepatitis. Single photon emission computed tomography images of mice injected with 131I-labeled 6β-iodocholesterol demonstrated that Gnmt-/- mice had slower hepatic cholesterol uptake and excretion rates than wild-type mice. In addition, genes related to cholesterol uptake (scavenger receptor class B type 1 [SR-B1] and ATP-binding cassette A1 (ABCA1)), intracellular trafficking (Niemann-Pick type C1 protein [NPC1] and Niemann-Pick type C2 protein [NPC2]) and excretion (ATP-binding cassette G1 [ABCG1]) were downregulated in Gnmt-/- mice. Yeast two-hybrid screenings and coimmunoprecipitation assays elucidated that the C conserved region (81–105 amino acids) of NPC2 interacts with the carboxyl-terminal fragment (171–295 amino acids) of GNMT. Confocal microscopy demonstrated that when cells were treated with low-density lipoprotein, NPC2 was released from lysosomes and interacts with GNMT in the cytosol. Overexpression of GNMT doubled the half-lives of both NPC2 isoforms and reduced cholesterol accumulation in cells. Furthermore, GNMT was downregulated in the liver tissues from patients suffering with NAFLD as well as from mice fed a high-fat diet, high-cholesterol diet or methionine/choline-deficient diet. In conclusion, our study demonstrated that GNMT regulates the homeostasis of cholesterol metabolism, and hepatic cholesterol accumulation may result from downregulation of GNMT and instability of its interactive protein NPC2. Novel therapeutics for steatohepatitis and HCC may be developed by using this concept