Although peroxisomal fatty acid (FA) β-oxidation is known to be critical for animal development, the cellular mechanisms that control the manner in which its neuronal deficiency causes developmental defects remain unclear. To elucidate the potential cellular consequences of neuronal FA metabolic disorder for dauer development, an alternative developmental process in Caenorhabditis elegans that occurs during stress, we investigated the sequential effects of its corresponding genetic deficiency. Here, we show that the daf-22 gene in peroxisomal FA β-oxidation plays a distinct role in ASK neurons, and its deficiency interrupts dauer development even in the presence of the exogenous ascaroside pheromones that induce such development. Un-metabolized FAs accumulated in ASK neurons of daf-22 mutants stimulate the endoplasmic reticulum (ER) stress response, which may enhance the XBP-1 activity that promotes the transcription of neuronal insulin-like peptides. These sequential cell-autonomous reactions in ASK neurons then activate insulin/IGF-1 signaling, which culminates in the suppression of DAF-16/FOXO activity. This suppression results in the interruption of dauer development, independently of pheromone presence. These findings suggest that neuronal peroxisomal FA β-oxidation is indispensable for animal development by regulating the ER stress response and neuroendocrine signaling.