Mitochondria empower the liver to regulate lipid homeostasis by enabling fatty acid oxidation during starvation and lipogenesis during nutrient-rich conditions. It is unknown if mitochondria can seamlessly regulate these two distinct processes or if two discrete populations of mitochondria achieve these two functions in the liver. For the first time in the liver, we report the isolation of two distinct populations of mitochondria from male Wistar rats on an ad-libitum diet: cytoplasmic mitochondria and lipid droplet-associated mitochondria. Our studies show that while lipid droplet mitochondria exhibit higher fatty acid oxidation and are marked by enhanced levels of pACC2, MFN2, and CPT1 activity, cytoplasmic mitochondria are associated with higher respiration capacity. Notably, lipid droplet-associated mitochondria isolated from a non-alcoholic fatty liver disease (NAFLD) rat model are compromised for fatty acid oxidation. We demonstrate the importance of functional segregation of mitochondria as any aberration in lipid droplet-associated mitochondria may lead to NAFLD.