Obesity is strongly correlated with type 2 diabetes mellitus, a common disorder of glucose and lipid metabolism. Although adipocytes are critical in obesity, their role in diabetes has only recently been appreciated. We conducted studies by using DNA microarrays to identify differences in gene expression in adipose tissue from lean, obese, and obese-diabetic mice. The expression level of over 11,000 transcripts was analyzed, and 214 transcripts showed significant differences between lean and obese mice. Surprisingly, the expression of genes normally associated with adipocyte differentiation were down-regulated in obesity. Not all obese individuals will become diabetic; many remain normoglycemic despite profound obesity. Understanding the transition to obesity with concomitant diabetes will provide important clues to the pathogenesis of type 2 diabetes. Therefore, we examined the levels of gene expression in adipose tissue from five groups of obese mice with varying degrees of hyperglycemia, and we identified 88 genes whose expression strongly correlated with diabetes severity. This group included many genes that are known to be involved in signal transduction and energy metabolism as well as genes not previously examined in the context of diabetes. Our data show that a decrease in expression of genes normally involved in adipogenesis is associated with obesity, and we further identify genes important for subsequent development of type 2 diabetes mellitus.