Insulin resistance is a fundamental defect that precedes the development of the full insulin resistance syndrome as well as beta cell failure and type 2 diabetes. Tumor necrosis factor-alpha (TNF-alpha), a paracrine/autocrine factor highly expressed in adipose tissues of obese animals and human subjects, is implicated in the induction of insulin resistance seen in obesity and type 2 diabetes. Here, we review several molecular aspects of adipose tissue physiology, and highlight the direct effects of TNF-alpha on the functions of adipose tissue including induction of lipolysis, inhibition of insulin signaling, and alterations in expression of adipocyte important genes through activation of NF-kappaB, as well as their pertinence to insulin sensitivity of adipocytes. We also review the ability of TNF-alpha to inhibit synthesis of several adipocyte-specific proteins including Acrp30 (adiponectin) and enhance release of free fatty acids (FFAs) from adipose tissue, and discuss how these factors may act as systemic mediators of TNF-alpha and affect whole body energy homeostasis and overall insulin sensitivity. On the basis of these mechanisms, we examine the therapeutic potential of blocking specific autocrine/paracrine signaling pathways in adipocytes, particularly those involving NF-kappaB, in the treatment of type 2 diabetes.