Signaling cascades during adipogenesis culminate in the expression of two essential adipogenic factors, PPARγ and C/EBPα. Here we demonstrate that the IRE1α-XBP1 pathway, the most conserved branch of the unfolded protein response (UPR), is indispensable for adipogenesis. Indeed, XBP1-deficient mouse embryonic fibroblasts and 3T3-L1 cells with XBP1 or IRE1α knockdown exhibit profound defects in adipogenesis. Intriguingly, C/EBPβ, a key early adipogenic factor, induces Xbp1 expression by directly binding to its proximal promoter region. Subsequently, XBP1 binds to the promoter of Cebpa and activates its gene expression. The posttranscriptional splicing of Xbp1 mRNA by IRE1α is required as only the spliced form of XBP1 (XBP1s) rescues the adipogenic defect exhibited by XBP1-deficient cells. Taken together, our data show that the IRE1α-XBP1 pathway plays a key role in adipocyte differentiation by acting as a critical regulator of the morphological and functional transformations during adipogenesis.