Many recent studies have identified that saturated fatty acids induce hepatocellular toxicity. A better understanding of the toxicity mechanism may provide insight into cures for diseases such as obesity-associated cirrhosis. Trehalose, a nonreducing disaccharide shown to protect proteins and cellular membranes from inactivation or denaturation caused by different stress conditions, is protective against palmitate-induced toxicity. The objective of this study is to combine experimental and molecular modeling approaches to investigate the mechanism by which trehalose protects HepG2 cells from palmitate induced toxicity, and to elucidate the mechanism of palmitate induced toxicity. In the present study, the effects of palmitate on model liposome and cellular membranes were investigated as part of the non-specific cytotoxicity of palmitate observed in HepG2 cells. Our results also suggest trehalose contributes to the protection of HepG2 cells by interacting with the plasma membrane to counteract perturbations induced by palmitate on the cellular membrane, such as changes in the membrane fluidity. We also observe that trehalose serves as a free radical scavenger and alleviates damage from hydrogen peroxide secreted by compromised cells. The experimental results presented and the interpretation of the findings are supported by molecular dynamics simulations of model cell membranes. The simulation conditions are chosen to reflect the experimental conditions as close as possible to observe the specific interactions between palmitate, trehalose, and hydrogen peroxide and the cell membrane. The simulations performed reveal how palmitate induces biophysical changes to the cell membrane, the role of trehalose in protecting the membrane structure, and the ability of trehalose to scavenge free radicals, such as hydrogen peroxide.