Abstract Sterol regulatory element–binding protein (SREBP)-1a is a key transcription factor that activates the expression of genes involved in the synthesis of fatty acids, triglycerides (TGs), and cholesterol. Transgenic mice that overexpress the nuclear form of SREBP-1a under the control of the phosphoenolpyruvate carboxykinase promoter (Tg-1a) were previously shown to display a lipodystrophic phenotype characterized by enlarged and fatty livers, diminished peripheral white adipose tissue (WAT), and insulin resistance. In the current study, we crossed these Tg-1a mice with genetically obese (ob/ob) mice (Tg-1a;ob/ob) and examined change in fat distribution between liver and adipose tissues in severe obesity and mechanism underlying the lipodystrophic phenotype in mice with Tg-1a. Tg-1a;ob/ob mice developed more severe steatohepatitis but had reduced WAT mass and body weight compared with ob/ob mice. The reduction of WAT mass in Tg-1a and Tg-1a;ob/ob mice was accompanied by enhanced lipogenesis and lipid uptake in the liver, reduced plasma lipid levels, impaired adipocyte differentiation, reduced food intake, enhanced energy expenditure, and extended macrophage infiltration and fibrosis in WAT. Despite the improved glucose tolerance, Tg-1a;ob/ob mice showed severe peripheral insulin resistance. Adenoviral hepatic expression of SREBP-1a mimicked these phenotypes. The “fat steal”-like lipodystrophy phenotype of the Tg-1a;ob/ob model demonstrates that hepatic SREBP-1a activation has a strong impact on the partition of TG accumulation, resulting in adipose-tissue remodeling by inflammation and fibrosis and insulin resistance.