Intracellular lipids are stored in lipid droplets (LDs) and metabolized by cytoplasmic neutral hydrolases to supply lipids for cell use. Recently, an alternative pathway of lipid metabolism through the lysosomal degradative pathway of autophagy has been described and termed lipophagy. In this form of lipid metabolism, LD triglycerides (TGs) and cholesterol are taken up by autophagosomes and delivered to lysosomes for degradation by acidic hydrolases. Free fatty acids generated by lipophagy from the breakdown of TGs fuel cellular rates of mitochondrial β-oxidation. Lipophagy therefore functions to regulate intracellular lipid stores, cellular levels of free lipids such as fatty acids and energy homeostasis. The amount of lipid metabolized by lipophagy varies in response to the extracellular supply of nutrients. The ability of the cell to alter the amount of lipid targeted for autophagic degradation depending on nutritional status demonstrates that this process is selective. Intracellular lipids themselves regulate levels of autophagy by unclear mechanisms. Impaired lipophagy can lead to excessive tissue lipid accumulation such as hepatic steatosis, alter hypothalamic neuropeptide release to affect body mass, block cellular transdifferentiation and sensitize cells to death stimuli. Future studies will likely identify additional mechanisms by which lipophagy regulates cellular physiology, making this pathway a potential therapeutic target in a variety of diseases.