Summary Lipid droplets (LD) are lipid storage organelles that grow or shrink, depending on the availability of metabolic energy. Proteins recruited to LDs mediate many metabolic functions, including phosphatidylcholine and triglyceride synthesis. How the LD protein composition is tuned to the supply and demand for lipids remains unclear. We show that LDs, in contrast to other organelles, have limited capacity for protein binding. Consequently, macromolecular crowding plays a major role in determining LD protein composition. During lipolysis, when LDs and their surfaces shrink, some, but not all, proteins become displaced. In vitro studies show that macromolecular crowding, rather than changes in monolayer lipid composition, causes proteins to fall off the LD surface. As predicted by a crowding model, proteins compete for binding to the surfaces of LDs. Moreover, the LD binding affinity determines protein localization during lipolysis. Our findings identify protein crowding as an important principle in determining LD protein composition.