Obesity is associated with a state of chronic low‐grade inflammation, which contributes to insulin resistance and type 2 diabetes. However, the molecular mechanisms that link obesity to inflammation are not fully understood. Follistatin‐like 1 (FSTL1) is a novel proinflammatory cytokine that is expressed in adipose tissue and secreted by preadipocytes/adipocytes. We aimed to test whether FSTL1 could have a role in obesity‐induced inflammation and insulin resistance. It was found that FSTL1 expression was markedly decreased during differentiation of 3T3‐L1 preadipocytes but reinduced by TNF‐α. Furthermore, a significant increase in FSTL1 levels was observed in adipose tissue of obese ob/ob mice, as well as in serum of overweight/obese subjects. Mechanistic studies revealed that FSTL1 induced inflammatory responses in both 3T3‐L1 adipocytes and RAW264.7 macrophages. The expression of proinflammatory mediators including IL‐6, TNF‐α, and MCP‐1 was upregulated by recombinant FSTL1 in a dose‐dependent manner, paralleled with activation of the IKKβ‐NFκB and JNK signaling pathways in the two cell lines. Moreover, FSTL1 impaired insulin signaling in 3T3‐L1 adipocytes, as revealed by attenuated phosphorylation of both Akt and IRS‐1 in response to insulin stimulation. Together, our results suggest that FSTL1 is a potential mediator of inflammation and insulin resistance in obesity.