The prevalence of obesity has been increasing dramatically in the last decades in the whole world, not only in industrialized countries but also in developing areas. A major complication of obesity is insulin resistance and type 2 diabetes. Diabetes is also rapidly increasing world-wide--reaching a prevalence in adults of approx. 5-6% in Central Europe and in the US, and more than 50% in specific, genetically prone populations. This article reviews pathogenetic mechanisms linking obesity and type 2 diabetes. Emphasis is placed on the observation that excessive amounts of adipocytes are associated with an impairment of insulin sensitivity, a key feature of the "metabolic syndrome". This is a cluster of metabolic abnormalities such as type 2 diabetes, hypertension and dyslipidemia; all of them are enhanced by the presence of visceral (abdominal) obesity and all contribute to the increased cardiovascular risk observed in these patients. Besides release of free fatty acids, adipocytes secrete substances that contribute to peripheral insulin resistance, including adiponectin, resistin, TNF-alpha and interleukin 6. Increased turnover of free fatty acids interferes with intracellular metabolism of glucose in the muscle, and they exert lipotoxic effect on pancreatic beta-cells. The pre-receptor metabolism of cortisol is enhanced in visceral adipose tissue by activation of 11 beta-hydroxysteroid dehydrogenase type 1. A new class of anti-diabetic drugs (thiazolidinediones, or glitazones) bind to peroxisome proliferator activated receptor (PPAR-gamma) and lower thereby plasma free fatty acids and cytokine production in adipocytes, in addition to a decrease of resistin and an increase in adiponectin observed in animals, resulting in an overall increase in insulin sensitivity and in an improvement of glucose homeostasis. However, the first step to avoid insulin resistance and prevent the development of diabetes should be a reduction in body weight in overweight subjects, and an increase in physical activity. There are now three published randomized controlled trials demonstrating that in high risk individuals, life style changes with modest weight lost, associated with diminished fat intake and an increase in fruit and vegetable consumption result in marked inhibition of the transition from the prediabetic state to manifest type 2 diabetes.