Methionine-1 (M1)-linked polyubiquitin chains conjugated by the linear ubiquitin chain assembly complex (LUBAC) control NF-κB activation, immune homoeostasis, and prevents tumour necrosis factor (TNF)-induced cell death. The deubiquitinase OTULIN negatively regulates M1-linked polyubiquitin signalling by removing the chains conjugated by LUBAC, and OTULIN deficiency causes OTULIN-related autoinflammatory syndrome (ORAS) in humans. However, the cellular pathways and physiological functions controlled by OTULIN remain poorly understood. Here, we show that OTULIN prevents development of liver disease in mice and humans. In an ORAS patient, OTULIN deficiency caused spontaneous and progressive steatotic liver disease at 10–13 months of age. Similarly, liver-specific deletion of OTULIN in mice leads to neonatally onset steatosis and hepatitis, akin to the ORAS patient. OTULIN deficiency triggers metabolic alterations, apoptosis, and inflammation in the liver. In mice, steatosis progresses to steatohepatitis, fibrosis and pre-malignant tumour formation by 8 weeks of age, and by the age of 7–12 months the phenotype has advanced to malignant hepatocellular carcinoma. Surprisingly, the pathology in OTULIN-deficient livers is independent of TNFR1 signalling. Instead, we find that steatohepatitis in OTULIN-deficient livers is associated with aberrant mTOR activation, and inhibition of mTOR by rapamycin administration significantly reduces the liver pathology. Collectively, our results reveal that OTULIN is critical for maintaining liver homoeostasis and suggest that M1-linked polyubiquitin chains may play a role in regulation of mTOR signalling and metabolism in the liver.