Due to the rise in overnutrition, the incidence of obesity-induced hepatocellular carcinoma (HCC) will continue to escalate; however, our understanding of the obesity to HCC developmental axis is limited. We constructed a single-cell atlas to interrogate the dynamic transcriptomic changes during hepatocarcinogenesis in mice. Here we identify fatty acid binding protein 5 (FABP5) as a driver of obesity-induced HCC. Analysis of transformed cells reveals that FABP5 inhibition and silencing predispose cancer cells to lipid peroxidation and ferroptosis-induced cell death. Pharmacological inhibition and genetic ablation of FABP5 ameliorates the HCC burden in male mice, corresponding to enhanced ferroptosis in the tumour. Moreover, FABP5 inhibition induces a pro-inflammatory tumour microenvironment characterized by tumour-associated macrophages with increased expression of the co-stimulatory molecules CD80 and CD86 and increased CD8 T cell activation. Our work unravels the dual functional role of FABP5 in diet-induced HCC, inducing the transformation of hepatocytes and an immunosuppressive phenotype of tumour-associated macrophages and illustrates FABP5 inhibition as a potential therapeutic approach.