Sepsis is a complex life-threatening syndrome caused by dysregulated inflammatory and metabolic host response to infection. Alterations in lipid metabolism and an increased number of lipid droplets (LDs) are observed during sepsis; however LD involvement in maladaptive tissue tolerance that culminates in organ dysfunction during sepsis is poorly understood. Here we show that increased accumulation of LDs is associated with peroxidized lipid production, liver dysfunction and sepsis severity. Through the use of antioxidants or CRISPR/Cas9 deletion of the NADPH oxidase subunit p22phox we demonstrate that ROS induced LD biogenesis and oxidatively altered LD content. Moreover, the LDs associated with mitochondria and peridroplet mitochondria in cells from the septic mice showed increased ultrastructural damage. Strikingly, dampening LD accumulation by DGAT1 inhibition decreased the production of inflammatory mediators, reduced lipid peroxidation while improving tissue function. Altogether, we demonstrate that LDs contribute to sepsis-associated organ dysfunction by disrupting tissue tolerance through the amplification of lipid peroxidation, suggesting that LD and changes in lipid metabolism in sepsis may be a target for therapy.