Carboxylesterase 1d (Ces1d) is a crucial enzyme with a wide range of activities in multiple tissues. It has been reported to localize predominantly in ER. Here, we found that Ces1d levels are significantly increased in obese patients with type 2 diabetes. Intriguingly, a high level of Ces1d translocates onto lipid droplets where it digests the lipids to produce a unique set of fatty acids. We further revealed that adipose tissue–specific Ces1d knock-out (FKO) mice gained more body weight with increased fat mass during a high fat-diet challenge. The FKO mice exhibited impaired glucose and lipid metabolism and developed exacerbated liver steatosis. Mechanistically, deficiency of Ces1d induced abnormally large lipid droplet deposition in the adipocytes, causing ectopic accumulation of triglycerides in other peripheral tissues. Furthermore, loss of Ces1d diminished the circulating free fatty acids serving as signaling molecules to trigger the epigenetic regulations of energy metabolism via lipid-sensing transcriptional factors, such as HNF4α. The metabolic disorders induced an unhealthy microenvironment in the metabolically active tissues, ultimately leading to systemic insulin resistance.