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Nonsteroidal anti-inflammatory drug (NSAID) use is associated with adverse consequences, including hepatic injury. The detrimental hepatotoxicity of diclofenac, a widely used NSAID, is primarily connected to oxidative damage in mitochondria, which are the primary source of reactive oxygen species (ROS). The primary ROS responsible for inducing diclofenac-related hepatocellular toxicity and the principal antioxidant that mitigates these ROS remain unknown. Peroxiredoxin III (PrxIII) is the most abundant and potent H₂O₂-eliminating enzyme in the mitochondria of mammalian cells. Here, we investigated the role of mitochondrial H₂O₂ and the protective function of PrxIII in diclofenac-induced mitochondrial dysfunction and apoptosis in hepatocytes. Mitochondrial H₂O₂ levels were differentiated from other types of ROS using a fluorescent H₂O₂ indicator. Upon diclofenac treatment, PrxIII-knockdown HepG2 human hepatoma cells showed higher levels of mitochondrial H₂O₂ than PrxIII-expressing controls. PrxIII-depleted cells exhibited higher mitochondrial dysfunction as measured by a lower oxygen consumption rate, loss of mitochondrial membrane potential, cardiolipin oxidation, and caspase activation, and were more sensitive to apoptosis. Ectopic expression of mitochondrially targeted catalase in PrxIII-knockdown HepG2 cells or in primary hepatocytes derived from PrxIII-knockout mice suppressed the diclofenac-induced accumulation of mitochondrial H₂O₂ and decreased apoptosis. Thus, we demonstrated that mitochondrial H₂O₂ is a key mediator of diclofenac-induced hepatocellular damage driven by mitochondrial dysfunction and apoptosis. We showed that PrxIII loss results in the critical accumulation of mitochondrial H₂O₂ and increases the harmful effects of diclofenac. PrxIII or other antioxidants targeting mitochondrial H₂O₂ could be explored as potential therapeutic agents to protect against the hepatotoxicity associated with NSAID use.