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 interrelated 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-dependent modifications in LD membrane morphology. Furthermore, LD-to-peroxisome FA trafficking mediated by M1 Spastin is required to relieve LDs of lipid peroxidation. M1 Spastin’s dual roles in tethering LDs to peroxisomes and in recruiting ESCRT-III components to LD–peroxisome contact sites for FA trafficking may underlie the pathogenesis of diseases associated with defective FA metabolism in LDs and peroxisomes.