Nonalcoholic fatty liver disease (NAFLD) and nonalcoholic steatohepatitis (NASH) remain without effective therapies. The mechanistic target of rapamycin complex 1 (mTORC1) pathway is a potential therapeutic target, but conflicting interpretations have been proposed for how mTORC1 controls lipid homeostasis. We show that selective inhibition of mTORC1 signaling in mice, through deletion of the RagC/D guanosine triphosphatase–activating protein folliculin (FLCN), promotes activation of transcription factor E3 (TFE3) in the liver without affecting other mTORC1 targets and protects against NAFLD and NASH. Disease protection is mediated by TFE3, which both induces lipid consumption and suppresses anabolic lipogenesis. TFE3 inhibits lipogenesis by suppressing proteolytic processing and activation of sterol regulatory element–binding protein-1c (SREBP-1c) and by interacting with SREBP-1c on chromatin. Our data reconcile previously conflicting studies and identify selective inhibition of mTORC1 as a potential approach to treat NASH and NAFLD.