As an adipokine in circulation, adiponectin has been extensively studied for its beneficial metabolic effects. While many important functions have been attributed to adiponectin under high-fat diet conditions, little is known about its essential role under regular chow. Employing a mouse model with inducible, acute β-cell ablation, we uncovered an essential role of adiponectin under insulinopenic conditions to maintain minimal lipid homeostasis. When insulin levels are marginal, adiponectin is critical for insulin signaling, endocytosis, and lipid uptake in subcutaneous white adipose tissue. In the absence of both insulin and adiponectin, severe lipoatrophy and hyperlipidemia lead to lethality. In contrast, elevated adiponectin levels improve systemic lipid metabolism in the near absence of insulin. Moreover, adiponectin is sufficient to mitigate local lipotoxicity in pancreatic islets, and it promotes reconstitution of β-cell mass, eventually reinstating glycemic control. We uncovered an essential new role for adiponectin, with major implications for type 1 diabetes.