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Nonalcoholic fatty liver disease (NAFLD) affects approximately 30% of adults and 20% of children in the United States. Nonalcoholic steatohepatitis (NASH) is its most severe histologic form and progresses to cirrhosis in 20% of these patients. Once developed, 30% to 40% of patients with NASH cirrhosis will experience a liver-related death. Consequently, it has become extremely important to understand the pathophysiology of NASH to develop sound therapeutic interventions. It is now recognized that nonhepatic mechanisms are largely responsible for the development of insulin resistance, which causes hepatic steatosis. Once developed, oxidative stress and diminished antioxidants within the liver initiate the progression from steatosis alone to NASH and ultimately to cirrhosis. However, not all patients progress to cirrhosis. As is the case for other common complex metabolic diseases, it is the interaction between the environment and genetics that will determine the phenotypic expression of NAFLD and NASH in each individual patient. Which of the pathophysiologic factors (which are discussed in this review), either alone or in combination, will eventually provide the basis for the most effective therapy has yet to be determined.