High levels of dietary saturated fat have been closely associated with the development of hepatic steatosis, but the factors that mediate this process remain elusive. Here, we observed that the level of cell death‐inducing DNA fragmentation factor‐alpha‐like effector a (Cidea) expression was highly correlated with the severity of hepatic steatosis in humans. Overexpression of Cidea in mouse liver resulted in increased hepatic lipid accumulation and the formation of large lipid droplets (LDs). In contrast, mice with a Cidea deficiency had decreased lipid accumulation and alleviated hepatic steatosis when they received a high‐fat‐diet feeding or in ob/ob mice. Furthermore, the knockdown of Cidea in livers of ob/ob mice resulted in significantly reduced hepatic lipid accumulation and smaller LDs. Importantly, we observed that Cidea expression in hepatocytes was specifically induced by saturated fatty acids (FAs), and such induction was reduced when sterol response element‐binding protein (SREBP)1c was knocked down. In contrast, the overexpression of SREBP1c restored the saturated FA‐induced expression of Cidea. In addition, we observed that the stability of Cidea protein in hepatocytes increased significantly in response to treatment with FAs. Conclusion: Cidea plays critical roles in promoting hepatic lipid accumulation and in the development of hepatic steatosis by acting as a sensor that responds to diets that contain FAs. (Hepatology 2012;56:95–107)