Preadipocyte factor-1 (Pref-1) is a transmembrane protein highly expressed in preadipocytes. Pref-1 expression is, however, completely abolished in adipocytes. The extracellular domain of Pref-1 undergoes two proteolytic cleavage events that generate 50 and 25 kDa soluble products. To understand the function of Pref-1, we generated transgenic mice that express the full ectodomain corresponding to the large cleavage product of Pref-1 fused to human immunoglobulin-gamma constant region. Mice expressing the Pref-1/hFc transgene in adipose tissue, driven by the adipocyte fatty acid-binding protein (aP2, also known as aFABP) promoter, showed a substantial decrease in total fat pad weight. Moreover, adipose tissue from transgenic mice showed reduced expression of adipocyte markers and adipocyte-secreted factors, including leptin and adiponectin, whereas the preadipocyte marker Pref-1 was increased. Pref-1 transgenic mice with a substantial, but not complete, loss of adipose tissue exhibited hypertriglyceridemia, impaired glucose tolerance, and decreased insulin sensitivity. Mice expressing the Pref-1/hFc transgene exclusively in liver under the control of the albumin promoter also showed a decrease in adipose mass and adipocyte marker expression, suggesting an endocrine mode of action of Pref-1. These findings demonstrate the inhibition of adipogenesis by Pref-1 in vivo and the resulting impairment of adipocyte function that leads to the development of metabolic abnormalities.