Common obesity-associated hepatic steatosis (nonalcoholic fatty liver disease (NAFLD)) and insulin resistance are mainly caused by dysfunctional adipose tissue. This adipose tissue dysfunction leads to increased delivery of NEFA and glycerol to the liver that (i) drives hepatic gluconeogenesis and (ii) facilitates the accumulation of lipids and insulin signaling inhibiting lipid intermediates. Dysfunctional adipose tissue can be caused by impaired lipid storage (overflow hypothesis, characterized by large visceral adipocytes) or increased lipolysis (due to impaired postprandial suppression of lipolysis in inflamed, insulin-resistant adipocytes). In line with the adipose tissue expandability hypothesis the amount and distribution of adipose tissue correlate with its dysfunction and thus with liver fat. This relationship is however modified by endocrine effects on lipid storage and lipolysis as well as dietary effects on hepatic lipogenesis and lipid oxidation. The association between body composition characteristics like visceral obesity or fat cell size and ectopic liver fat is modified by these influences. Phenotyping obesity according to metabolic risk should integrate body composition characteristics, endocrine parameters and information on diet.