Abstract Background/objectives Visceral adiposity is associated with increased diabetes risk, while expansion of subcutaneous adipose tissue may be protective. However, the visceral compartment contains different fat depots. Peripancreatic adipose tissue (PAT) is an understudied visceral fat depot. Here, we aimed to define PAT functionality in lean and high-fat-diet (HFD)-induced obese mice. Subjects/methods Four adipose tissue depots (inguinal, mesenteric, gonadal, and peripancreatic adipose tissue) from chow- and HFD-fed male mice were compared with respect to adipocyte size (n = 4–5/group), cellular composition (FACS analysis, n = 5–6/group), lipogenesis and lipolysis (n = 3/group), and gene expression (n = 6–10/group). Radioactive tracers were used to compare lipid and glucose metabolism between these four fat depots in vivo (n = 5–11/group). To determine the role of PAT in obesity-associated metabolic disturbances, PAT was surgically removed prior to challenging the mice with HFD. PAT-ectomized mice were compared to sham controls with respect to glucose tolerance, basal and glucose-stimulated insulin levels, hepatic and pancreatic steatosis, and gene expression (n = 8–10/group). Results We found that PAT is a tiny fat depot (~0.2% of the total fat mass) containing relatively small adipocytes and many “non-adipocytes” such as leukocytes and fibroblasts. PAT was distinguished from the other fat depots by increased glucose uptake and increased fatty acid oxidation in both lean and obese mice. Moreover, PAT was the only fat depot where the tissue weight correlated positively with liver weight in obese mice (R = 0.65; p = 0.009). Surgical removal of PAT followed by 16-week HFD feeding was associated with aggravated hepatic steatosis (p = 0.008) and higher basal (p < 0.05) and glucose-stimulated insulin levels (p < 0.01). PAT removal also led to enlarged pancreatic islets and increased pancreatic expression of markers of glucose-stimulated insulin secretion and islet development (p < 0.05). Conclusions PAT is a small metabolically highly active fat depot that plays a previously unrecognized role in the pathogenesis of hepatic steatosis and insulin resistance in advanced obesity.