Type 2 diabetes mellitus (T2DM) is characterized by insulin resistance in liver and muscle and impaired insulin secretion. Considerable evidence also implicates deranged adipocyte metabolism and altered fat topography in the pathogenesis of glucose intolerance in T2DM. 1) Fat cells are resistant to insulin’s antilipolytic effect, leading to day-long elevated plasma FFA levels. Chronically increased plasma FFA stimulates gluconeogenesis, induces hepatic/muscle insulin resistance, and impairs insulin secretion in genetically predisposed individuals. These FFA-induced disturbances are referred to as lipotoxicity. 2) Dysfunctional fat cells produce excessive amounts of insulin resistance-inducing, inflammatory, and atherosclerotic-provoking cytokines and fail to secrete normal amounts of insulin-sensitizing adipocytokines. 3) Enlarged fat cells are insulin resistant and have diminished capacity to store fat. When adipocyte storage capacity is exceeded, lipid “overflows” into muscle, liver, and perhaps-cells, causing muscle/hepatic insulin resistance and impaired insulin secretion. Thiazolidinediones enhance adipocyte insulin sensitivity, inhibit lipolysis, reduce plasma FFA, and favorably influence the production of adipocytokines. Thiazolidinediones also redistribute fat within the body (decreased visceral and hepatic fat; increased sc fat) and decrease intracellular concentrations of triglyceride metabolites in muscle, liver, and-cells, contributing to improvements in muscle/hepatic insulin sensitivity and pancreatic function in type 2 diabetics.