Mitochondrial lipids are essential for maintaining the integrity of mitochondrial membranes and the proper functions of mitochondria. As the “powerhouse” of a cell, mitochondria are also the major cellular source of reactive oxygen species (ROS). Oxidative stress occurs when the antioxidant system is overwhelmed by overproduction of ROS. Polyunsaturated fatty acids in mitochondrial membranes are primary targets for ROS attack, which may lead to lipid peroxidation (LPO) and generation of reactive lipids, such as 4-hydroxynonenal. When mitochondrial lipids are oxidized, the integrity and function of mitochondria may be compromised and this may eventually lead to mitochondrial dysfunction, which has been associated with many human diseases including cancer, cardiovascular diseases, diabetes, and neurodegenerative diseases. How mitochondrial lipids are oxidized and the underlying molecular mechanisms and pathophysiological consequences associated with mitochondrial LPO remain poorly defined. Oxidation of the mitochondria-specific phospholipid cardiolipin and generation of bioactive lipids through mitochondrial LPO has been increasingly recognized as an important event orchestrating apoptosis, metabolic reprogramming of energy production, mitophagy, and immune responses. In this review, we focus on the current understanding of how mitochondrial LPO and generation of bioactive lipid mediators in mitochondria are involved in the modulation of mitochondrial functions in the context of relevant human diseases associated with oxidative stress.