Obesity is a major cause of type 2 diabetes, clinically evidenced as hyperglycemia. The altered glucose homeostasis is caused by faulty signal transduction via the insulin signaling proteins, which results in decreased glucose uptake by the muscle, altered lipogenesis, and increased glucose output by the liver. The etiology of this derangement in insulin signaling is related to a chronic inflammatory state, leading to the induction of inducible nitric oxide synthase and release of high levels of nitric oxide and reactive nitrogen species, which together cause posttranslational modifications in the signaling proteins. There are substantial differences in the molecular mechanisms of insulin resistance in muscle versus liver. Hormones and cytokines from adipocytes can enhance or inhibit both glycemic sensing and insulin signaling. The role of the central nervous system in glucose homeostasis also has been established. Multipronged therapies aimed at rectifying obesity-induced anomalies in both central nervous system and peripheral tissues may prove to be beneficial.