Obesity is associated with chronic inflammation and contributes to the development of insulin resistance and nonalcoholic fatty liver disease. The suppressor of cytokine signaling-3 (SOCS3) protein is increased in inflammation and is thought to contribute to the pathogenesis of insulin resistance by inhibiting insulin and leptin signaling. Therefore, we studied the metabolic effects of liver-specific SOCS3 deletion in vivo. We fed wild-type (WT) and liver-specific SOCS3 knockout (SOCS3 LKO) mice either a control diet or a high-fat diet (HFD) for 6 weeks and examined their metabolic phenotype. We isolated hepatocytes from WT and SOCS3 LKO mice and examined the effects of tumor necrosis factor alpha and insulin on Akt phosphorylation and fatty acid metabolism and lipogenic gene expression. Hepatocytes from control-fed SOCS3 LKO mice were protected from developing tumor necrosis factor alpha-induced insulin resistance but also had increased lipogenesis and expression of sterol response element-binding protein-1c target genes. Lean SOCS3 LKO mice fed a control diet had enhanced hepatic insulin sensitivity; however, when fed an HFD, SOCS3 LKO mice had increased liver fat, inflammation, and whole-body insulin resistance. SOCS3 LKO mice fed an HFD also had elevated hypothalamic SOCS3 and fatty acid synthase expression and developed greater obesity due to increased food intake and reduced energy expenditure. Conclusion: Deletion of SOCS3 in the liver increases liver insulin sensitivity in mice fed a control diet but paradoxically promotes lipogenesis, leading to the development of nonalcoholic fatty liver disease, inflammation, and obesity.