One of the earliest hallmarks of type 2 diabetes is resistance of the peripheral tissues liver and muscle to the action of insulin, which is generally referred to as insulin resistance. Development of insulin resistance is strongly promoted by obesity. In fact obesity is the major risk factor for insulin resistance, and 80% of all type 2 diabetic patients are overweight or obese. Whereas obesity is by definition characterized by an excessive accumulation of fat in the body, it is specifically the accumulation of fat within peripheral tissues (called steatosis or ectopic fat accumulation), which is associated with the development of insulin resistance. Indeed, type 2 diabetic patients and their first-degree relatives are characterized by excessive accumulation of fat in skeletal muscle. Similarly, the presence of fatty liver in patients with type 2 diabetes and obesity has long been reported. This accumulation of fat in the liver markedly increases the risk for metabolic complications, including insulin resistance and cardiovascular events. Despite the well-known detrimental effects of ectopic fat accumulation, it is not completely understood why fat accumulates in muscle and liver.