Increased adipose tissue lipogenesis is associated with enhanced insulin sensitivity. Mice overexpressing the Glut4 glucose transporter in adipocytes have elevated lipogenesis and increased glucose tolerance despite being obese with elevated circulating fatty acids. Lipidomic analysis of adipose tissue revealed the existence of branched fatty acid esters of hydroxy fatty acids (FAHFAs) that were elevated 16- to 18-fold in these mice. FAHFA isomers differ by the branched ester position on the hydroxy fatty acid (e.g., palmitic-acid-9-hydroxy-stearic-acid, 9-PAHSA). PAHSAs are synthesized in vivo and regulated by fasting and high-fat feeding. PAHSA levels correlate highly with insulin sensitivity and are reduced in adipose tissue and serum of insulin-resistant humans. PAHSA administration in mice lowers ambient glycemia and improves glucose tolerance while stimulating GLP-1 and insulin secretion. PAHSAs also reduce adipose tissue inflammation. In adipocytes, PAHSAs signal through GPR120 to enhance insulin-stimulated glucose uptake. Thus, FAHFAs are endogenous lipids with the potential to treat type 2 diabetes.