Highly Active Antiretroviral Therapy (HAART) has significantly increased life expectancy of HIV patients; however, there are major side effects which include lipodystrophy and hepatotoxicity. Alcohol abuse is highly prevalent in HIV patients and can be a significant negative cofactor in HAART‐hepatotoxicity. Hence, the mechanisms underlying HAART and alcohol induced hepatotoxicity were investigated. Specifically, effects of HAART drugs (azidothymidine, and Indinavir sulphate) in combination with alcohol were examined both in vitro and in vivo. Individually, alcohol and AZT caused cytotoxicity in H4IIEC3 (a rat hepatoma) cells which was significantly increased in combination. These data indicate that alcohol can induce and further enhance HAART‐cytotoxicity.Assessment of Alcohol and HAART drug interaction and hepatotoxicity using an animal model of chronic alcohol feeding showed increased visceral adiposity compared to pair‐fed animals, suggesting disturbances in lipid metabolism. Lipodystrophy was seen as hepatic macro and microvesicular steatosis, elevated triglycerides and free fatty acids. These animals also exhibited increased inflammation and hepatic neutrophil infiltration. Overall, our data demonstrate that alcohol exacerbates HAART hepatotoxicity, and act as a significant cofactor in the development of hepatic steatosis and liver injury.