BACKGROUND AND AIMS: The immunosuppressive T regulatory cells (Tregs) regulate immune responses and maintain immune homeostasis, yet their functions in nonalcoholic fatty liver disease (NAFLD) pathogenesis remains controversial. METHODS: Mice were fed a normal diet (ND) or a western diet (WD) for 16 weeks to induce NAFLD. Diphtheria toxin injection to deplete Tregs in Foxp3 DTR mice or Treg induction therapy in WT mice to augment Treg numbers was initiated at twelve and eight weeks, respectively. Liver tissues from mice and NASH human subjects were analyzed by histology, confocal imaging, and qRT-PCR. RESULTS: WD triggered accumulation of adaptive immune cells, including Tregs and effector T cells, within the liver parenchyma. This pattern was also observed in NASH patients, where an increase in intrahepatic Tregs was noted. In the absence of adaptive immune cells in Rag1 KO mice, WD promoted accumulation of intrahepatic neutrophils and macrophages and exacerbated hepatic inflammation and fibrosis. Similarly, targeted Treg depletion exacerbated WD-induced hepatic inflammation and fibrosis. In Treg-depleted mice, hepatic injury was associated with increased accumulation of neutrophils, macrophages, and activated T cells within the liver. Conversely, induction of Tregs using recombinant IL2/αIL2 mAb cocktail reduced hepatic steatosis, inflammation, and fibrosis in WD-fed mice. Analysis of intrahepatic Tregs from WD-fed mice revealed a phenotypic signature of impaired Treg function in NAFLD. Ex vivo functional studies showed that glucose and palmitate, but not fructose, impaired the immunosuppressive ability of Treg cells. CONCLUSIONS: Our findings indicate that the liver microenvironment in NAFLD impairs ability of Tregs to suppress effector immune cell activation, thus perpetuating chronic inflammation and driving NAFLD progression. These data suggest that targeted approaches aimed at restoring Treg function may represent a potential therapeutic strategy for treating NAFLD. LAY SUMMARY: In this study, we elucidate the mechanisms contributing to the perpetuation of chronic hepatic inflammation in nonalcoholic fatty liver disease (NAFLD). We show that dietary sugar and fatty acids promote chronic hepatic inflammation in NAFLD by impairing immunosuppressive function of regulatory T cells. Finally, our preclinical data suggest that targeted approaches aimed at restoring T regulatory cell function have the potential to treat NAFLD.