Adipocyte fatty acid-binding protein, aP2, is a member of the intracellular fatty acid binding protein family. Previously, studies have shown increased insulin sensitivity in aP2-deficient mice with dietary obesity. Here, we asked whether aP2-related alterations in lipolytic response and insulin production are features of obesity-induced insulin resistance and investigated the effects of aP2-deficiency on glucose homeostasis and lipid metabolism in ob/ob mice, a model of extreme obesity. ob/ob mice homozygous for the aP2 null allele (ob/ ob-aP2-/-) became more obese than ob/ob mice as indicated by significantly increased body weight and fat pad size but unaltered body length. However, despite their extreme adiposity, ob/ob-aP2-/- animals were more insulin-sensitive compared with ob/ob controls, as demonstrated by significantly lower plasma glucose and insulin levels and better performance in both insulin and glucose tolerance tests. These animals also showed improvements in dyslipidemia and had lower plasma triglyceride and cholesterol levels. Lipolytic response to beta-adrenergic stimulation and lipolysis-associated insulin secretion was significantly reduced in ob/ob-aP2-/- mice. Interestingly, glucose-stimulated insulin secretion, while virtually abolished in ob/ob controls, was significantly improved in ob/ob-aP2-/- animals. There were no apparent morphological differences in the structure or size of the pancreatic islets between genotypes. Taken together, the data indicate that in obesity, aP2-deficiency not only improves peripheral insulin resistance but also preserves pancreatic beta cell function and has beneficial effects on lipid metabolism.