The global obesity epidemic is showing no signs of abating, and is fuelling an explosion in numbers of Type 2 Diabetes Mellitus (T2D) worldwide. Despite clear epidemiological and pathophysiological links between obesity and T2D, the actual mechanisms are complex given that some people with obesity appear to be protected in some way from developing T2D, and T2D can develop in a minority of lean people. Obesity and T2D form part of the metabolic syndrome, which combined with hypertension and dyslipidaemia result in premature mortality from cardiovascular disease in millions of people globally each year. Long-term microvascular sequelae from T2D and multiple co-morbidities associated with obesity (including psychological, musculoskeletal, respiratory and reproductive) also have a major adverse impact on quality of life and pose an enormous fiscal burden on global health authorities. Major factors contributing towards ‘diabesity’ include chronic overconsumption of energy-dense foods and lack of physical activity. Recently, it was recognized that T2D is characterized by impaired fat metabolism in addition to glucotoxicity. Overconsumption of energy-dense foods results in excessive fat deposition and enhanced insulin resistance. Free fatty acids (FFAs) delivered to the liver via the portal vein result in fatty liver. FFAs spill into the systemic circulation resulting in lipotoxicity of organs such as pancreas, heart and muscles initiating a viscous cycle of fat damage, inflammation, worsening insulin resistance and beta cell insulin secretion, and ultimately manifestation of T2D. Visceral fat content is an independent predictor of insulin resistance, whilst adipokines such as adiponectin protect against obesity-induced T2D. Further study of the precise mechanisms of lipotoxicity in the development of T2D will enable development of novel strategies to manage and eventually prevent onset of T2D in the context of obesity. In this brief review article, we discuss the currently-understood intricate associations between obesity and T2D and options for management.