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.