Our previous studies reveal a mechanism for lipid droplet (LD)-mediated proteostasis in the endoplasmic reticulum (ER) whereby unfolded proteins that accumulate in the ER in response to lipid imbalance-induced ER stress are removed by LDs and degraded by microlipophagy (µLP), autophagosome-independent LD uptake into the vacuole (the yeast lysosome). Here, we show that dithiothreitol- or tunicamycin-induced ER stress also induces µLP and identify an unexpected role for vacuolar membrane dynamics in this process. All stressors studied induce vacuolar fragmentation prior to µLP. Moreover, during µLP, fragmented vacuoles fuse to form cup-shaped structures that encapsulate and ultimately take up LDs. Our studies also indicate that proteins of the endosome sorting complexes required for transport (ESCRT) are upregulated, required for µLP, and recruited to LDs, vacuolar membranes, and sites of vacuolar membrane scission during µLP. We identify possible target proteins for LD-mediated ER proteostasis. Our live-cell imaging studies reveal that one potential target (Nup159) localizes to punctate structures that colocalizes with LDs 1) during movement from ER membranes to the cytosol, 2) during microautophagic uptake into vacuoles, and 3) within the vacuolar lumen. Finally, we find that mutations that inhibit LD biogenesis, homotypic vacuolar membrane fusion or ESCRT function inhibit stress-induced autophagy of Nup159 and other ER proteins. Thus, we have obtained the first direct evidence that LDs and µLP can mediate ER stress-induced ER proteostasis, and identified direct roles for ESCRT and vacuolar membrane fusion in that process.