Specific metabolic pathways are activated by different nutrients to adapt the organism to available resources. Although essential, these mechanisms are incompletely defined. Here, we report that medium-chain fatty acids contained in coconut oil, a major source of dietary fat, induce the liver ω-oxidation genes Cyp4a10 and Cyp4a14 to increase the production of dicarboxylic fatty acids. Furthermore, these activate all ω- and β-oxidation pathways through peroxisome proliferator activated receptor (PPAR) α and PPARγ, an activation loop normally kept under control by dicarboxylic fatty acid degradation by the peroxisomal enzyme L-PBE. Indeed, L-pbe−/− mice fed coconut oil overaccumulate dicarboxylic fatty acids, which activate all fatty acid oxidation pathways and lead to liver inflammation, fibrosis, and death. Thus, the correct homeostasis of dicarboxylic fatty acids is a means to regulate the efficient utilization of ingested medium-chain fatty acids, and its deregulation exemplifies the intricate relationship between impaired metabolism and inflammation.