The rising prevalence of nonalcoholic fatty liver disease (NAFLD)-related cirrhosis highlights the need for a better understanding of the molecular mechanisms responsible for driving the transition of hepatic steatosis (fatty liver; NAFL) to steatohepatitis (NASH) and fibrosis/cirrhosis. Obesity-related insulin resistance (IR) is a well-known hallmark of early NAFLD progression, yet the mechanism linking aberrant insulin signaling to hepatocyte inflammation has remained unclear. Recently, as a function of more distinctly defining the regulation of mechanistic pathways, hepatocyte toxicity as mediated by hepatic free cholesterol and its metabolites has emerged as fundamental to the subsequent necroinflammation/fibrosis characteristics of NASH. More specifically, aberrant hepatocyte insulin signaling, as found with IR, leads to dysregulation in bile acid biosynthetic pathways with the subsequent intracellular accumulation of mitochondrial CYP27A1-derived cholesterol metabolites, (25R)26-hydroxycholesterol and 3β-Hydroxy-5-cholesten-(25R)26-oic acid, which appear to be responsible for driving hepatocyte toxicity. These findings bring forth a “two-hit” interpretation as to how NAFL progresses to NAFLD: abnormal hepatocyte insulin signaling, as occurs with IR, develops as a “first hit” that sequentially drives the accumulation of toxic CYP27A1-driven cholesterol metabolites as the “second hit”. In the following review, we examine the mechanistic pathway by which mitochondria-derived cholesterol metabolites drive the development of NASH. Insights into mechanistic approaches for effective NASH intervention are provided.