Evidence is presented that shows that free fatty acids (FFA) are one important link between obesity, insulin resistance, and type 2 diabetes. Plasma FFA levels are elevated in most obese subjects, and physiological elevations of plasma FFA inhibit insulin-stimulated glucose uptake into muscle. This peripheral insulin resistance is caused by an FFA-induced defect, which develops 3-4 hr after raising plasma FFA, in insulin-stimulated glucose transport or phosphorylation, or both. This resistance is also caused by a second defect, which develops after 4-6 hr, consisting of inhibition of glycogen synthase activity. Whether elevated plasma FFA levels inhibit insulin action on endogenous glucose production (EGP), that is, cause central insulin resistance, is more difficult to demonstrate. On the one hand, FFA increase gluconeogenesis, which enhances EGP; on the other hand, FFA increase insulin secretion, which decreases EGP. Basal plasma FFA support approximately one third of basal insulin secretion in diabetic and nondiabetic subjects and, hence, are responsible for some of the hyperinsulinemia in obese, normoglycemic patients. In addition, elevated plasma FFA levels potentiate glucose-stimulated insulin secretion acutely and during prolonged exposure (48 hr). It is hypothesized that obese subjects who are genetically predisposed to develop type 2 diabetes will become partially "lipid blind," that is, unable to compensate for their FFA-induced insulin resistance with FFA-induced insulin oversecretion. The resulting insulin resistance/secretion deficit will then have to be compensated for with glucose-induced insulin secretion, which, because of their partial "glucose blindness," will result in hyperglycemia and eventually in type 2 diabetes.