Phosphatidylcholine (PC) and phosphatidylethanolamine (PE) are major phospholipids in mammalian membranes. In liver, PC is synthesized via the choline pathway or by methylation of PE via phosphatidylethanolamine N-methyltransferase (PEMT). Pemt^−/− mice fed a choline-deficient (CD) diet develop rapid steatohepatitis leading to liver failure. Steatosis is observed in CD mice that lack both PEMT and multiple drug-resistant protein 2 (MDR2), required for PC secretion into bile. We demonstrate that liver failure in CD-Pemt^−/− mice is due to loss of membrane integrity caused by a decreased PC/PE ratio. The CD-Mdr2^−/−/Pemt^−/− mice escape liver failure by maintaining a normal PC/PE ratio. Manipulation of PC/PE levels suggests that this ratio is a key regulator of cell membrane integrity and plays a role in the progression of steatosis into steatohepatitis. The results have clinical implications as patients with nonalcoholic steatohepatitis have a decreased ratio of PC to PE compared to control livers.