Non-alcoholic fatty liver disease (NAFLD) is associated with the development of metabolic syndromes and hepatocellular carcinoma (HCC). Cholesterol accumulation is related to NAFLD, while its detailed mechanism is not fully understood. Previously, we reported that glycine N-methyltransferase knockout (Gnmt-/-) mice develop chronic hepatitis and HCC. In this study, we showed that Gnmt-/- mice had hyperlipidemia and steatohepatitis. Single photon emission computed tomography images of mice injected with (131)I-labeled 6beta-iodocholesterol demonstrated that Gnmt-/- mice had slower hepatic cholesterol uptake and excretion rates than the wild-type mice. Besides, genes related to cholesterol uptake (SR-B1 and ABCA1), intracellular trafficking (NPC1 and NPC2) and excretion (ABCG1) were down-regulated in Gnmt-/- mice. Yeast two-hybrid screenings and co-immunoprecipitation assays elucidated that the C conserved region (81-105 a.a.) of Niemann-Pick type C2 protein (NPC2) interacts with carboxyl terminal fragment (171-295 a.a.) of GNMT. Confocal microscopy demonstrated that when cells were treated with low density lipoprotein, NPC2 was released from lysosomes and interacts with GNMT in the cytosol. Over-expression of GNMT doubled the half-lives of both NPC2 isoforms and reduced cholesterol accumulation in cells. Furthermore, GNMT was down-regulated in the liver tissues from patients suffering NAFLD as well as from mice fed with high fat diet, high cholesterol diet or methionine/choline deficient diet. In conclusion, our study demonstrated that GNMT regulates the homeostasis of cholesterol metabolism and hepatic cholesterol accumulation may result from down-regulation of GNMT and instability of its interactive protein-NPC2. Novel therapeutics for steatohepatitis and HCC may be developed through using this concept.