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Lipid droplets (LDs) are neutral lipid storage organelles that transfer lipids to various organelles including peroxisomes. Here, we show that the hereditary spastic paraplegia protein M1 Spastin, a membrane-bound AAA ATPase found on LDs, coordinates fatty acid (FA) trafficking from LDs to peroxisomes through two inter-related mechanisms. First, M1 Spastin forms a tethering complex with peroxisomal ABCD1 to promote LD-peroxisome contact formation. Second, M1 Spastin recruits the membrane-shaping ESCRT-III proteins IST1 and CHMP1B to LDs via its MIT domain to facilitate LD-to-peroxisome FA trafficking, possibly through IST1 and CHMP1B modifying LD membrane morphology. Furthermore, M1 Spastin, IST1 and CHMP1B are all required to relieve LDs of lipid peroxidation. The roles of M1 Spastin in tethering LDs to peroxisomes and in recruiting ESCRT-III components to LD-peroxisome contact sites for FA trafficking may help explain the pathogenesis of diseases associated with defective FA metabolism in LDs and peroxisomes.