Aerobic capacity/fitness significantly impacts susceptibility for fatty liver and diabetes, but the mechanisms remain unknown. Herein, we utilized rats selectively bred for high (HCR) and low (LCR) intrinsic aerobic capacity to examine the mechanisms by which aerobic capacity impacts metabolic vulnerability for fatty liver following a 3-day high-fat diet (HFD). Indirect calorimetry assessment of energy metabolism combined with radiolabeled dietary food was employed to examine systemic metabolism in combination with ex vivo measurements of hepatic lipid oxidation. The LCR, but not HCR, displayed increased hepatic lipid accumulation in response to the HFD despite both groups increasing energy intake. However, LCR rats had a greater increase in energy intake and demonstrated greater daily weight gain and percent body fat due to HFD compared with HCR. Additionally, total energy expenditure was higher in the larger LCR. However, controlling for the difference in body weight, the LCR has lower resting energy expenditure compared with HCR. Importantly, respiratory quotient was significantly higher during the HFD in the LCR compared with HCR, suggesting reduced whole body lipid utilization in the LCR. This was confirmed by the observed lower whole body dietary fatty acid oxidation in LCR compared with HCR. Furthermore, LCR liver homogenate and isolated mitochondria showed lower complete fatty acid oxidation compared with HCR. We conclude that rats bred for low intrinsic aerobic capacity show greater susceptibility for dietary-induced hepatic steatosis, which is associated with a lower energy expenditure and reduced whole body and hepatic mitochondrial lipid oxidation.