Backgrounds & aims: Squalene epoxidase (SQLE) is the rate-limiting enzyme for cholesterol biosynthesis. We elucidated the functional significance, molecular mechanisms, and clinical impact of SQLE in nonalcoholic steatohepatitis (NASH). Methods: We performed studies with hepatocyte-specific Sqle overexpression transgenic (Sqle tg) mice and mice given high-fat high-cholesterol (HFHC) or methionine- and choline-deficient (MCD) diet to induce NASH. SQLE downstream target carbonic anhydrase III (CA3) was identified using co-immunoprecipitation and Western Blot. Some mice were given SQLE inhibitor (terbinafine) and CA3 inhibitor (acetazolamide) to study the therapeutic effects in NASH. Human samples (N = 217) including 65 steatoses, 80 NASH, and 72 healthy controls were analyzed for SQLE levels in liver tissue and in serum. Results: SQLE is highly up-regulated in human NASH and mouse models of NASH. Sqle tg mice triggered spontaneous insulin resistance, hepatic steatosis, liver injury, and accelerated HFHC or MCD diet-induced NASH development. Mechanistically, SQLE tg mice caused hepatic cholesterol accumulation, thereby triggering proinflammatory nuclear factor-κB signaling and steatohepatitis. SQLE directly bound to CA3, which induced sterol regulatory element-binding protein 1C activation, acetyl-CoA carboxylase, fatty acid synthase, and stearoyl-CoA desaturase1 expression and de novo hepatic lipogenesis. Combined targeting SQLE (terbinafine) and CA3 (acetazolamide) synergistically ameliorated NASH in mice with superior efficacy to either drug alone. Serum SQLE with CA3 could distinguish patients with NASH from steatosis and healthy controls (area under the receiver operating characteristic curve, 0.815; 95% confidence interval, 0.758-0.871). Conclusions: SQLE drives the initiation and progression of NASH through inducing cholesterol biosynthesis, and SQLE/CA3 axis-mediated lipogenesis. Combined targeting of SQLE and CA3 confers therapeutic benefit in NASH. Serum SQLE and CA3 are novel biomarkers for the noninvasive diagnosis of patients with NASH. Keywords: Carbonic Anhydrase 3; De Novo Lipogenesis; Nonalcoholic Steatohepatitis; Serum Biomarkers; Squalene Epoxidase.