Insulin exerts pleiotropic effects on cell growth, survival, and metabolism, and its role in multiple tissues has been dissected using conditional knockout mice; however, its role in development has not been studied. Lineage tracing experiments have demonstrated that interscapular brown adipose tissue (BAT) arises from a Myf5-positive lineage shared with skeletal muscle and distinct from the majority of white adipose tissue (WAT) precursors. In this study, we sought to investigate the effects of impaired insulin signaling in the Myf5-expressing precursor cells by deleting the insulin receptor gene. Mice lacking insulin receptor in the Myf5 lineage (Myf5IRKO) have a decrease of interscapular BAT mass; however, muscle development appeared normal. Histologically, the residual BAT had decreased cell size but appeared mature and potentially functional. Expression of adipogenic inhibitors preadipocyte factor-1, Necdin, and wingless-type MMTV integration site member 10a in the residual BAT tissue was nonetheless increased compared with controls, and there was an enrichment of progenitor cells with impaired adipogenic differentiation capacity, suggesting a suppression of adipogenesis in BAT. Surprisingly, when cold challenged, Myf5IRKO mice did not show impaired thermogenesis. This resistance to cold could be attributed to an increased presence of uncoupling protein 1-positive brown adipocytes in sc WAT as well as increased expression of lipolytic activity in BAT. These data suggest a critical role of insulin signaling in the development of interscapular BAT from Myf5-positive progenitor cells, but it appears to be dispensable for muscle development. They also underscore the importance of compensatory browning of sc WAT in the absence of BAT for thermoregulation.