Lysosomes are centers for nutrient sensing and recycling that allow mammals to adapt to starvation. Regulation of lysosome dynamics by internal nutrient signaling is well described, but the mechanisms by which external cues modulate lysosomal function are unclear. Here, we describe an essential role of the fasting-induced hormone fibroblast growth factor 21 (FGF21) in lysosome homeostasis in mice. Fgf21 deficiency impairs hepatic lysosomal function by blocking transcription factor EB (TFEB), a master regulator of lysosome biogenesis and autophagy. FGF21 induces mobilization of calcium from the endoplasmic reticulum, which activates the transcriptional repressor downstream regulatory element antagonist modulator (DREAM), and thereby inhibits expression of Mid1 (encoding the E3 ligase Midline-1). Protein phosphatase PP2A, a substrate of MID1, accumulates and dephosphorylates TFEB, thereby upregulating genes involved in lysosome biogenesis, autophagy and lipid metabolism. Thus, an FGF21-TFEB signaling axis links lysosome homeostasis with extracellular hormonal signaling to orchestrate lipid metabolism during fasting.