Mitochondria lie at the heart of innate immunity, and aberrant mitochondrial activity contributes to immune activation and chronic inflammatory diseases, including liver cancers. Mitophagy is a selective process for removing dysfunctional mitochondria. The link between mitophagy and inflammation in tumorigenesis remains largely unexplored. We observed that FUN14 domain‐containing 1 (FUNDC1), a previously characterized mitophagy receptor, accumulates in most human hepatocellular carcinomas (HCCs), and we thus explored the role of FUNDC1‐mediated mitophagy in HCC initiation and progression in a mouse model in which HCC is induced by the chemical carcinogen, diethylnitrosamine (DEN). We showed that specific knockout of FUNDC1 in hepatocytes promotes the initiation and progression of DEN‐induced HCC, whereas FUNDC1 transgenic hepatocytes protect against development of HCC. Hepatocyte‐specific FUNDC1 ablation results in the accumulation of dysfunctional mitochondria and triggers a cascade of events involving inflammasome activation and hyperactivation of Janus kinase/signal transducer and activator of transcription signaling. Specifically, cytosolic mitochondrial DNA (mtDNA) release and caspase‐1 activation are increased in FUNDC1‐depleted hepatocytes. This subsequently results in the elevated release of proinflammatory cytokines, such as interleukin‐1β (IL1β) and hyperproliferation of hepatocytes. Conclusion: Our results suggest that FUNDC1 suppresses HCC initiation by reducing inflammasome activation and inflammatory responses in hepatocytes, whereas up‐regulation of FUNDC1 expression at the late stage of tumor development may benefit tumor growth. Our study thus describes a mechanistic link between mitophagic modulation of inflammatory response and tumorigenesis, and further implies that FUNDC1‐mediated mitophagy and its related inflammatory response may represent a therapeutic target for liver cancer.