Leptin reduces body weight in ob/ob mice by decreasing food intake and increasing energy expenditure; however, the mechanisms by which it does the latter are not known. Here we report that 30% of the weight loss induced by leptin treatment of ob/ob mice is due to changes in energy expenditure. In assessing leptin's effects on specific tissues, we found that hepatic basal metabolic rate was paradoxically decreased 1.7-fold with leptin treatment, which was the result of a 1.6-fold reduction in mitochondrial volume density and altered substrate oxidation kinetics. The altered kinetics were associated with a decrease in protein levels of 2 mitochondrial respiratory chain components--cytochrome c oxidase subunit VIa and cytochrome c oxidase subunit IV. In addition to reduced hepatic metabolism, there was reduced long chain fatty acid production and a 2.5-fold increase in hepatic lipid export, both of which explain the reduced steatosis in leptin-treated animals. These data help clarify the role of the liver in leptin-mediated weight loss and define the mechanisms by which leptin alters hepatic metabolism and corrects steatosis.