Mice carrying a targeted disruption of the prostaglandin E2 (PGE2) E-prostanoid receptor 3 (EP3) gene, Ptger3, were fed a high-fat diet (HFD), or a micronutrient matched control diet, to investigate the effects of disrupted PGE2-EP3 signaling on diabetes in a setting of diet-induced obesity. Although no differences in body weight were seen in mice fed the control diet, when fed a HFD, EP3(-/-) mice gained more weight relative to EP3(+/+) mice. Overall, EP3(-/-) mice had increased epididymal fat mass and adipocyte size; paradoxically, a relative decrease in both epididymal fat pad mass and adipocyte size was observed in the heaviest EP3(-/-) mice. The EP3(-/-) mice had increased macrophage infiltration, TNF-α, monocyte chemoattractant protein-1, IL-6 expression, and necrosis in their epididymal fat pads as compared with EP3(+/+) animals. Adipocytes isolated from EP3(+/+) or EP3(-/-) mice were assayed for the effect of PGE2-evoked inhibition of lipolysis. Adipocytes isolated from EP3(-/-) mice lacked PGE2-evoked inhibition of isoproterenol stimulated lipolysis compared with EP3(+/+). EP3(-/-) mice fed HFD had exaggerated ectopic lipid accumulation in skeletal muscle and liver, with evidence of hepatic steatosis. Both blood glucose and plasma insulin levels were similar between genotypes on a control diet, but when fed HFD, EP3(-/-) mice became hyperglycemic and hyperinsulinemic when compared with EP3(+/+) fed HFD, demonstrating a more severe insulin resistance phenotype in EP3(-/-). These results demonstrate that when fed a HFD, EP3(-/-) mice have abnormal lipid distribution, developing excessive ectopic lipid accumulation and associated insulin resistance.