Nonshivering thermogenesis occurs in brown adipose tissue to generate heat in response to cold ambient temperatures. Thioesterase superfamily member 1 (Them1) is transcriptionally up-regulated in brown adipose tissue upon exposure to the cold and suppresses thermogenesis in order to conserve energy reserves. It hydrolyzes long-chain fatty acyl-CoAs that are derived from lipid droplets, preventing their use as fuel for thermogenesis. In addition to its enzymatic domains, Them1 contains a C-terminal StAR-related lipid transfer (START) domain with unknown ligand or function. By complementary biophysical approaches, we show that the START domain binds to long-chain fatty acids, products of Them1's enzymatic reaction, as well as lysophosphatidylcholine (LPC), lipids shown to activate thermogenesis in brown adipocytes. Certain fatty acids stabilize the START domain and allosterically enhance Them1 catalysis of acyl-CoA, whereas 18:1 LPC destabilizes and inhibits activity, which we verify in cell culture. Additionally, we demonstrate that the START domain functions to localize Them1 near lipid droplets. These findings define the role of the START domain as a lipid sensor that allosterically regulates Them1 activity and spatially localizes it in proximity to the lipid droplet.