It is well known that obesity is a major risk factor for type 2 diabetes (T2D), while exercise is known to reduce body fatness and attenuate the risk of T2D. The aim of this chapter is to examine the interactions between exercise, obesity and body fat distribution, and the risk for T2D. Firstly, we show that body fatness, in particular visceral adipose tissue (VAT) accumulation, is associated with insulin resistance and incident T2D. We then show that aerobic exercise of sufficient intensity and volume results in a decrease in body fat and VAT. Conversely, sedentary behavior and physical inactivity are associated with increased body fat and VAT. Finally, the chapter examines the interaction between physical activity (PA), obesity and risk for T2D and shows that both obesity and PA are significant independent predictors of incident T2D, but the magnitude of risk imparted by high levels of body fat is much greater than that of low levels of PA. Further, we show that obese physically active individuals are at greater risk for incident T2D than normal-weight physically inactive individuals. The mechanisms underlying this complex interaction include the ability of exercise to increase free fatty acid oxidation to match high rates of lipolysis associated with obesity, as well as the effects of exercise on adipokine, cytokine and myokine secretion. Exercise, of sufficient volume and intensity, is therefore recommended to reduce obesity, centralization of body fat, and risk of T2D.