Insects are an attractive alternative to fish meal (FM) as a sustainable protein source in aquaculture feed that does not negatively impact the marine ecosystem. Despite housefly (Musca domestica) larvae having adequacy of amino acid profiles, they have sometimes been reported to be inferior to FM, especially for marine carnivorous fish species. Here, we report that the removal of the hydrophobic fractions from housefly larvae enables significant replacement of FM in the diet of the red seabream (Pagrus major). In a feeding trial, housefly (HF) larvae that had the hydrophobic fraction removed as a complete substitution for 70% FM produced satisfactory growth. However, HF larvae that were supplemented with the hydrophobic fraction resulted in significant growth reduction. Growth recovery was incomplete by supplementation of docosahexaenoic acid (DHA) and eicosapentaenoic acid (EPA) to undefatted HF larvae, being equivalent to that of fatty acid content with a control diet. Moreover, fish with a dietary intake of catechol identified from the hydrophobic fraction of the HF showed growth reduction and morphological alterations in the intestine. Our findings indicate that the hydrophobic fraction from HF larvae contains a negative factor for fish growth and eliminating the fraction from HF larvae is thought to be an important process for sustainable aquaculture.