Evidence is reviewed that free fatty acids (FFAs) are one important link between obesity and insulin resistance and NIDDM. First, plasma FFA levels are elevated in most obese subjects. Second, physiological elevations in plasma FFA concentrations inhibit insulin stimulated peripheral glucose uptake in a dose-dependent manner in normal controls and in patients with NIDDM. Two possible mechanisms are identified: 1) a fat-related inhibition of glucose transport or phosphorylation, which appears after 3–4 h of fat infusion, and 2) a decrease in muscle glycogen synthase activity, which appears after 4–6 h of fat infusion. Third, FFAs stimulate insulin secretion in nondiabetic individuals. Some of this insulin is transmitted in the peripheral circulation and is able to compensate for FFA-mediated peripheral insulin resistance. FFA-mediated portal hyperinsulinemia counteracts the stimulation of FFAs on hepatic glucose production (HGP) and thus prevents hepatic glucose overproduction. We speculate that, in obese individuals who are genetically predisposed to develop NIDDM, FFAs will eventually fail to promote insulin secretion. The stimulatory effect of FFAs on HGP would then become unchecked, resulting in hyperglycemia. Hence, continuously elevated levels of plasma FFAs may play a key role in the pathogenesis of NIDDM in predisposed individuals by impairing peripheral glucose utilization and by promoting hepatic glucose overproduction.