Adenosine deaminase acting on RNA 1 (ADAR1) is an essential protein for embryonic liver development. ADAR1 loss is embryonically lethal because of severe liver damage. Although ADAR1 is required in adult livers to prevent liver cell death, as demonstrated by liver-specific conditional knockout (Alb-ADAR1^KO) mice, the mechanism remains elusive. We systematically analyzed Alb-ADAR1^KO mice for liver damage. Differentiation genes and inflammatory pathways were examined in hepatic tissues from Alb-ADAR1^KO and littermate controls. Inducible ADAR1 KO mice were used to validate regulatory effects of ADAR1 on inflammatory cytokines. We found that Alb-ADAR1^KO mice showed dramatic growth retardation and high mortality because of severe structural and functional damage to the liver, which showed overwhelming inflammation, cell death, fibrosis, fatty change, and compensatory regeneration. Simultaneously, Alb-ADAR1^KO showed altered expression of key differentiation genes and significantly higher levels of hepatic inflammatory cytokines, especially type I interferons, which was also verified by inducible ADAR1 knockdown in primary hepatocyte cultures. We conclude that ADAR1 is an essential molecule for maintaining adult liver homeostasis and, in turn, morphological and functional integrity. It inhibits the production of type I interferons and other inflammatory cytokines. Our findings may provide novel insight in the pathogenesis of liver diseases caused by excessive inflammatory responses, including autoimmune hepatitis.