Mdm1 maintains endoplasmic reticulum homeostasis by spatially regulating lipid droplet biogenesis.

Lipid droplets (LDs) serve as cytoplasmic reservoirs for energy-rich fatty acids (FAs) stored in the form of triacylglycerides (TAGs). During nutrient stress, yeast LDs cluster adjacent to the vacuole/lysosome, but how this LD accumulation is coordinated remains poorly understood. The ER protein Mdm1 is a molecular tether that plays a role in clustering LDs during nutrient depletion, but its mechanism of function remains unknown. Here, we show that Mdm1 associates with LDs through its hydrophobic N-terminal region, which is sufficient to demarcate sites for LD budding. Mdm1 binds FAs via its Phox-associated domain and coenriches with fatty acyl-coenzyme A ligase Faa1 at LD bud sites. Consistent with this, loss of perturbs free FA activation and Dga1-dependent synthesis of TAGs, elevating the cellular FA level, which perturbs ER morphology and sensitizes yeast to FA-induced lipotoxicity. We propose that Mdm1 coordinates FA activation adjacent to the vacuole to promote LD production in response to stress, thus maintaining ER homeostasis.