Targeted ablation of the novel flavoheme reductase Ncb5or knock-out (KO) results in progressive loss of pancreatic beta-cells and white adipose tissue over time. Lipoatrophy persisted in KO animals in which the confounding metabolic effects of diabetes were eliminated by islet transplantation (transplanted knockout (TKO)). Lipid profiles in livers prepared from TKO animals were markedly deficient in triglycerides and diacylglycerides. Despite enhanced expression of stearoyl-Co-A desaturase-1, levels of palmitoleic and oleic acids (Delta9 fatty acid desaturation) were decreased in TKO relative to wild type controls. Treatment of KO hepatocytes with palmitic acid reduced cell viability and increased apoptosis, a response blunted by co-incubation with oleic acid. The results presented here support the hypothesis that Ncb5or supplies electrons for fatty acid desaturation, offer new insight into the regulation of a crucial step in fatty acid biosynthesis, and provide a plausible explanation for both the diabetic and the lipoatrophic phenotype in Ncb5or(-/-) mice.