Despite growing interest in the relationship between autophagy and systemic metabolism, how global changes in autophagy affect metabolism remains unclear. Here we show that mice with global haploinsufficiency of an essential autophagy gene (Atg7(+/-) mice) do not show metabolic abnormalities but develop diabetes when crossed with ob/ob mice. Atg7(+/-)-ob/ob mice show aggravated insulin resistance with increased lipid content and inflammatory changes, suggesting that autophagy haploinsufficiency impairs the adaptive response to metabolic stress. We further demonstrate that intracellular lipid content and insulin resistance after lipid loading are increased as a result of autophagy insufficiency, and provide evidence for increased inflammasome activation in Atg7(+/-)-ob/ob mice. Imatinib or trehalose improves metabolic parameters of Atg7(+/-)-ob/ob mice and enhances autophagic flux. These results suggest that systemic autophagy insufficiency could be a factor in the progression from obesity to diabetes, and autophagy modulators have therapeutic potential against diabetes associated with obesity and inflammation.