In advanced old age, fat depot size declines while lipid is redistributed to muscle, bone marrow, and other tissues. Decreased fat depot size is related to reduced fat cell size and function and impaired differentiation of preadipocytes into fat cells. Reduced differentiation-dependent gene expression results from decreased abundance of the adipogenic transcription factors, CCAAT/enhancer binding alpha (C/EBPalpha) and peroxisome proliferator activated receptor gamma (PPARgamma). Increased expression of anti-adipogenic C/EBP family members contributes, perhaps due to cellular stress response pathway activation with aging. Hence, dysfunctional adipocyte-like cells appear in adipose tissue that are smaller and less insulin responsive than fully differentiated fat cells. Adipogenesis can be restored by overexpressing adipogenic transcription factors in preadipocytes from old animals. Redistribution of lipid to extra-adipose sites with aging could result from loss of lipid storage capacity in fat depots, altered fatty acid handling resulting in lipid accumulation, dysdifferentiation of mesenchymal precursors, such as muscle satellite cells and osteoblast precursors, into a partial adipocyte phenotype, or a combination of these mechanisms. Thus, accumulation of mesenchymal adipocyte-like default (MAD) cells in fat depots, muscle, bone marrow, and elsewhere is a potentially reversible process that could contribute to maldistribution of fat in old age.