The diverse biological effects of nanomaterials form the basis for their applications in biomedicine but also cause safety issues. Induction of autophagy is a cellular response after nanoparticles exposure. It may be beneficial in some circumstances, yet autophagy‐mediated toxicity raises an alarming concern. Previously, it has been reported that upconversion nanoparticles (UCNs) elicit liver damage, with autophagy contributing most of this toxicity. However, the detailed mechanism is unclear. This study reveals persistent presence of enlarged autolysosomes in hepatocytes after exposure to UCNs and SiO2 nanoparticles both in vitro and in vivo. This phenomenon is due to anomaly in the autophagy termination process named autophagic lysosome reformation (ALR). Phosphatidylinositol 4‐phosphate (PI(4)P) relocates onto autolysosome membrane, which is a key event of ALR. PI(4)P is then converted into phosphatidylinositol 4,5‐bisphosphate (PI(4,5)P2) by phosphatidylinositol‐4‐phosphate 5‐kinase. Clathrin is subsequently recruited by PI(4,5)P2 and leads to tubule budding of ALR. Yet it is observed that PI(4)P cannot be converted in nanoparticle‐treated hepatocytes cells. Exogenous supplement of PI(4,5)P2 suppresses the enlarged autolysosomes in vitro. Abolishment of these enlarged autolysosomes by autophagy inhibitor relieves the hepatotoxicity of UCNs in vivo. The results provide evidence for disrupted ALR in nanoparticle‐treated hepatocytes, suggesting that the termination of nanoparticle‐induced autophagy is of equal importance as the initiation. In hepatocytes treated with upconversion nanoparticles (UCN) or nano‐SiO2, loss of phosphatidylinositol‐4‐phosphate 5‐kinase causes the disrupted phospholipid transition from phosphatidylinositol 4‐phosphate to phosphatidylinositol 4,5‐bisphosphate on enlarged autolysosomal membrane and clathrin fails to be recruited to autolysosomes; autophagic lysosome reformation is blocked, leading to enlarged autolysosomes. In the UCN‐treated mice liver, manipulation of autophagy by 3‐methyladenine or trehalose affects liver damage.