The escort protein SCAP transports SREBPs from ER to Golgi where the active domains are released to activate genes for fatty acid (FA) and cholesterol synthesis. Mice with conditional SCAP deficiency in liver (L-Scap-) manifest marked reductions in hepatic lipid synthesis. Here, we show that the decreased FA synthesis in liver is balanced by an equal increase in nonhepatic tissues, primarily adipose tissue. Extrahepatic synthesis of FAs preserves adipose mass, even when L-Scap- mice consume a fat-free diet. This compensatory response disappears upon fasting, implicating a role for insulin, the major hormonal activator of FA synthesis. This response is mediated by an insulin-dependent increase in adipocyte SREBP-1c and its target mRNAs. In epididymal fat of L-Scap- mice, phosphorylated Akt, Glut-4 mRNA, and glucose uptake are also increased, indicating insulin hypersensitivity. Plasma VLDL triglycerides are dramatically reduced in L-Scap- mice, underscoring the benefits of synthesizing FAs in fat rather than liver.