Smoking is a major risk factor for diabetes, cardiovascular disease, and nonalcoholic fatty liver disease. The health risk associated with smoking can be exaggerated by obesity. We hypothesize that nicotine when combined with a high-fat diet (HFD) can also cause ectopic lipid accumulation in skeletal muscle, similar to recently observed hepatic steatosis. Adult C57BL6 male mice were fed a normal chow diet or HFD and received twice-daily ip injections of nicotine (0.75 mg/kg body weight) or saline for 10 weeks. Transmission electron microscopy of the gastrocnemius muscle revealed substantial intramyocellular lipid accumulation in close association with intramyofibrillar mitochondria along with intramyofibrillar mitochondrial swelling and vacuolization in nicotine-treated mice on an HFD compared with mice on an HFD treated with saline. These abnormalities were reversed by acipimox, an inhibitor of lipolysis. Mechanistically, the detrimental effect of nicotine plus HFD on skeletal muscle was associated with significantly increased oxidative stress, plasma free fatty acid, and muscle triglyceride levels coupled with inactivation of AMP-activated protein kinase and activation of its downstream target, acetyl-coenzyme A-carboxylase. We conclude that 1) greater oxidative stress together with inactivation of AMP-activated protein kinase mediates the effect of nicotine on skeletal muscle abnormalities in diet-induced obesity and 2) adipose tissue lipolysis is an important contributor of muscle steatosis and mitochondrial abnormalities.