Non-Alcoholic Fatty Liver Disease (NAFLD) is the most common type of chronic liver disease in developed nations, affecting around 25% of the population. Elucidating the factors causing NAFLD in individual patients to progress in different rates and to different degrees of severity, is a matter of active medical research. Here, we aim to provide evidence that the intra-hepatic heterogeneity of rheological, metabolic and tissue-regenerating capacities plays a central role in disease progression. We developed a generic mathematical model that constitutes the liver as ensemble of small liver units differing in their capacities to metabolize potentially cytotoxic free fatty acids (FFAs) and to repair FFA-induced cell damage. Transition from simple steatosis to more severe forms of NAFLD is described as self-amplifying process of cascading liver failure, which, to stop, depends essentially on the distribution of functional capacities across the liver. Model simulations provided the following insights: (1) A persistently high plasma level of FFAs is sufficient to drive the liver through different stages of NAFLD; (2) Presence of NAFLD amplifies the deleterious impact of additional tissue-damaging hits; and (3) Coexistence of non-steatotic and highly steatotic regions is indicative for the later occurrence of severe NAFLD stages.