In most eukaryotic cells, fatty acid synthesis (FAS) occurs in the cytoplasm and in mitochondria. However, the relative contribution of mitochondrial FAS (mtFAS) to the cellular lipidome is not well defined. Here we show that loss of function of Drosophila mitochondrial enoyl coenzyme A reductase (Mecr), which is the enzyme required for the last step of mtFAS, causes lethality, while neuronal loss of Mecr leads to progressive neurodegeneration. We observe a defect in Fe–S cluster biogenesis and increased iron levels in flies lacking mecr, leading to elevated ceramide levels. Reducing the levels of either iron or ceramide suppresses the neurodegenerative phenotypes, indicating an interplay between ceramide and iron metabolism. Mutations in human MECR cause pediatric-onset neurodegeneration, and we show that human-derived fibroblasts display similar elevated ceramide levels and impaired iron homeostasis. In summary, this study identifies a role of mecr/MECR in ceramide and iron metabolism, providing a mechanistic link between mtFAS and neurodegeneration.