Activation of liver X receptor (LXR) by its ligand T0901317 (T317) enhances interferon-γ (IFNγ) production to inhibit tumor growth. However, induction of severe hypertriglyceridemia and fatty liver by T317 limits its application. The naphthylacetic acid modified D-enantiomeric-glycine-phenylalanine-phenylalanine-tyrosine (D-Nap-GFFY) can form a nanofiber hydrogel which is selectively taken up by antigen-presenting cells (APCs). In this study, we determined if D-Nap-GFFY-encapsulated T317 (D-Nap-GFFY-T317) can potently inhibit tumor growth while having no adverse lipogenic effects on the liver. We prepared D-Nap-GFFY-T317 nanofiber hydrogel and subcutaneously injected it into IFNγ deficient (IFNγ) and wild-type (WT) mice with lung carcinoma, either inoculated LLC1 cells or urethane-induced carcinoma. Mice received oral T317 administration were used for comparison. Effects of treatment on tumor growth, lipogenesis and involved mechanisms were investigated. Compared with T317 oral administration, injection of D-Nap-GFFY-T317 more potently inhibited LLC1 tumor growth in mice. The inhibition was dependent on LXR-activated IFNγ expression in APCs. D-Nap-GFFY-T317 increased M1 while reducing M2 type macrophages in tumors. Associated with activation of IFNγ expression, D-Nap-GFFY-T317 enhanced dendritic cell maturation and infiltration into tumors, increased CD3/CD8 cells in tumors, and inhibited tumor angiogenesis. Similarly, D-Nap-GFFY-T317 more potently inhibited growth of urethane-induced lung carcinomas than T317 oral administration. In these two tumor models, T317 oral administration, but not D-Nap-GFFY-T317 injection, activated hepatic lipogenesis and induced fatty liver. Our study demonstrates that D-Nap-GFFY-T317 inhibits lung tumor growth without adverse effects on the liver, indicating the hydrogel-encapsulated LXR ligand might be a novel therapy for tumor treatment.