The subcutaneous adipose tissue (SAT) is the largest and best storage site for excess lipids. However, it has a limited ability to expand by recruiting and/or differentiating available precursor cells. When inadequate, this leads to a hypertrophic expansion of the cells with increased inflammation, insulin resistance, and a dysfunctional prolipolytic tissue. Epi-/genetic factors regulate SAT adipogenesis and genetic predisposition for type 2 diabetes is associated with markers of an impaired SAT adipogenesis and development of hypertrophic obesity also in nonobese individuals. We here review mechanisms for the adipose precursor cells to enter adipogenesis, emphasizing the role of bone morphogenetic protein-4 (BMP-4) and its endogenous antagonist gremlin-1, which is increased in hypertrophic SAT in humans. Gremlin-1 is a secreted and a likely important mechanism for the impaired SAT adipogenesis in hypertrophic obesity. Transiently increasing BMP-4 enhances adipogenic commitment of the precursor cells while maintained BMP-4 signaling during differentiation induces a beige/brown oxidative phenotype in both human and murine adipose cells. Adipose tissue growth and development also requires increased angiogenesis, and BMP-4, as a proangiogenic molecule, may also be an important feedback regulator of this. Hypertrophic obesity is also associated with increased lipolysis. Reduced lipid storage and increased release of FFA by hypertrophic SAT are important mechanisms for the accumulation of ectopic fat in the liver and other places promoting insulin resistance. Taken together, the limited expansion and storage capacity of SAT is a major driver of the obesity-associated metabolic complications.