Obesity is associated with insulin resistance and increased risk for developing type 2 diabetes. Enlarged adipocytes develop resistance to the anti-lipolytic action of insulin. Elevated levels of fatty acids in the plasma and interstitial fluids lead to whole-body insulin resistance by disrupting normal insulin-regulated glucose uptake and glycogen storage in skeletal muscle. A new understanding has been cultivated in the past 5 to 10 years that adipocytes and macrophages (resident or bone marrow-derived) in adipose tissue of obese animals and humans are activated in a pro-inflammatory capacity and secrete insulin resistance-inducing factors. However, only recently have fatty acids themselves been identified as agents that engage toll-like receptors of the innate immunity systems of macrophages, adipocytes and muscle cells to trigger pro-inflammatory responses. This review summarizes our observations that fatty acids evoke the release of pro-inflammatory factors from macrophages that consequently induce insulin resistance in muscle cells.