The role of autotaxin (ATX)-lysophosphatidic acid (LPA) is yet to be explored in the context of liver cirrhosis and associated encephalopathy. Our objective of this study was to evaluate the role of an ATX inhibitor in biliary cirrhosis and associated hepatic encephalopathy in rats. The preliminary investigation revealed significant impairment in liver function, which eventually led to the development of hepatic encephalopathy. Interestingly, LPA levels were significantly increased in the plasma, liver, and brain of rats following bile duct ligation. Subsequently, we tested the efficacy of an ATX inhibitor, CBT-295, in bile duct-induced biliary cirrhosis and neuropsychiatric symptoms associated with hepatic encephalopathy. CBT-295 showed good oral bioavailability and favorable pharmacokinetic properties. CBT-295 exhibited a significant reduction in inflammatory cytokines like TGF-β, TNF-α, and IL-6 levels, also reduced bile duct proliferation marker CK-19, and lowered liver fibrosis, as evident from reduced collagen deposition. The reversal of liver fibrosis with CBT-295 led to a reduction in blood and brain ammonia levels. Furthermore, CBT-295 also reduced neuroinflammation induced by ammonia, which is characterized by a significant reduction in brain cytokine levels. It improved neuropsychiatric symptoms such as locomotor activities, cognitive impairment, and clinical grading scores associated with hepatic encephalopathy. The improvement in hepatic encephalopathy observed with the ATX inhibitor could be the result of its hepatoprotective action and its ability to attenuate neuroinflammation. Therefore, inhibition of ATX-LPA signaling can be a multifactorial approach for the treatment of chronic liver diseases.