The molecular mechanism underlying adipogenesis and the physiological functions of adipose tissue are not fully understood. We describe here a unique mouse model of severe lipodystrophy. Ablation of Ptpn11/Shp2 in adipocytes, mediated by aP2-Cre, led to premature death, lack of white fat, low blood pressure, compensatory erythrocytosis, and hepatic steatosis in Shp2(fat-/-) mice. Fat transplantation partially rescued the lifespan and blood pressure in Shp2(fat-/-) mice, and administration of leptin also restored partially the blood pressure of mutant animals with endogenous leptin deficiency. Consistently, homozygous deletion of Shp2 inhibited adipocyte differentiation from embryonic stem (ES) cells. Biochemical analyses suggest a Shp2-TAO2-p38-p300-PPARγ pathway in adipogenesis, in which Shp2 suppresses p38 activation, leading to stabilization of p300 and enhanced PPARγ expression. Inhibition of p38 restored adipocyte differentiation from Shp2(-/-) ES cells, and p38 signaling is also suppressed in obese patients and obese animals. These results illustrate an essential role of adipose tissue in mammalian survival and physiology and also suggest a common signaling mechanism involved in adipogenesis and obesity development.