Background Non-alcoholic fatty liver disease (NAFLD) is the most common chronic liver disease and is characterized by excessive hepatic lipid accumulation. Many studies have suggested that lipid overload is the key initial factor that contributes to hepatic steatosis. Our previous study indicated that diosgenin (DSG) has a beneficial effect on energy metabolism, but the underlying mechanism remains unclear. Methods Human normal hepatocytes (LO2 cells) were incubated with palmitic acid to establish the cell model of nonalcoholic fatty liver. The effects of DSG on lipid metabolism, glucose uptake and mitochondrial function were evaluated. Furthermore, the mechanism of DSG on oxidative stress, lipid consumption and lipid synthesis in LO2 cells was investigated. Results The results indicated that palmitic acid induced obvious lipid accumulation in LO2 cells and that DSG treatment significantly reduced the intracellular lipid content. DSG treatment upregulated expression of lipolysis proteins, including phospho-AMP activated protein kinase (p-AMPK), phospho-acetyl-coA carboxylase (p-ACC) and carnitine acyl transferase 1A (CPT-1A), and inhibited expression of lipid synthesis-related proteins, including sterol regulatory element-binding protein 1c (SREBP-1c) and fatty acid synthase (FAS). Additionally, DSG-treated cells displayed a marked improvement in mitochondrial function, with less production of reactive oxygen species and a higher mitochondrial membrane potential compared with the model group. Conclusion This study suggests that DSG can reduce intracellular lipid accumulation in LO2 cells and that the underlying mechanism may be related to the improving oxidative stress, increasing fatty acid beta-oxidation and decreasing lipid synthesis. The above changes might be mediated by the activation of the AMPK/ACC/CPT-1A pathway and inhibition of the SREBP-1c/FAS pathway.