Type 2 diabetes is associated with excessive food intake and a sedentary lifestyle. Local inflammation of white adipose tissue induces cytokine-mediated insulin resistance of adipocytes. This results in enhanced lipolysis within these cells. The fatty acids that are released into the cytosol can be removed by mitochondrial β-oxidation. The flux through this pathway is normally limited by the rate of ADP supply, which in turn is determined by the metabolic activity of the adipocyte. It is expected that the latter does not adapt to an increased rate of lipolysis. We propose that elevated fatty acid concentrations in the cytosol of adipocytes induce mitochondrial uncoupling and thereby allow mitochondria to remove much larger amounts of fatty acids. By this, release of fatty acids out of adipocytes into the circulation is prevented. When the rate of fatty acid release into the cytosol exceeds the β-oxidation capacity, cytosolic fatty acid concentrations increase and induce mitochondrial toxicity. This results in a decrease in β-oxidation capacity and the entry of fatty acids into the circulation. Unless these released fatty acids are removed by mitochondrial oxidation in active muscles, these fatty acids result in ectopic triacylglycerol deposits, induction of insulin resistance, beta cell damage and diabetes. Thiazolidinediones improve mitochondrial function within adipocytes and may in this way alleviate the burden imposed by the excessive fat accumulation associated with the metabolic syndrome. Thus, the number and activity of mitochondria within adipocytes contribute to the threshold at which fatty acids are released into the circulation, leading to insulin resistance and type 2 diabetes.