Adipose tissue dysfunction is considered an important contributor to systemic insulin resistance and Type 2 diabetes (T2D). Recently, a novel family of endogenous lipids, palmitic acid hydroxy stearic acids (PAHSAs), was discovered. These have anti-diabetic and anti-inflammatory effects in mice and are reduced in serum and adipose tissue of insulin resistant humans. In the present study, we investigate if adipose tissue dysfunction is associated with reduced PAHSA levels in human subjects and if PAHSAs influence adipocyte differentiation. Our results show that low expression of adipocyte GLUT4 and adipocyte hypertrophy, markers of adipose tissue dysfunction, are associated with reduced expression of key enzymes for de novo lipogenesis and adipose tissue levels of PAHSAs in human subjects. We also show that GLUT4 is not only a marker of adipose tissue dysfunction, but may be causally related to the observed impairments. PAHSAs may also act locally in the adipose tissue to improve adipogenesis through a mechanism bypassing direct activation of peroxisome proliferator-activated receptor (PPARγ). The discovery of PAHSAs and our current results provide novel insights into positive effects of lipid species in adipose tissue and mechanisms by which dysfunctional adipose tissue is associated with insulin resistance and risk of developing T2D.