Hyperlipidemia is frequently associated with insulin resistance states as found in type 2 diabetes and obesity. Effects of free fatty acids (FFA) on pancreatic beta-cells have long been recognized. Acute exposure of the pancreatic beta-cell to FFA results in an increase of insulin release, whereas a chronic exposure results in desensitization and suppression of secretion. We recently showed that palmitate augments insulin release in the presence of non-stimulatory concentrations of glucose. Reduction of plasma FFA levels in fasted rats or humans severely impairs glucose-induced insulin release. These results imply that physiological plasma levels of FFA are important for beta-cell function. Although, it has been accepted that fatty acid oxidation is necessary for its stimulation of insulin secretion, the possible mechanisms by which fatty acids (FA) affect insulin secretion are discussed in this review. Long-chain acyl-CoA (LC-CoA) controls several aspects of the beta-cell function including activation of certain types of protein kinase C (PKC), modulation of ion channels, protein acylation, ceramide- and/or nitric oxide (NO)-mediated apoptosis, and binding to nuclear transcriptional factors. The present review also describes the possible effects of FA on insulin signaling. We showed for the first time that acute exposure of islets to palmitate upregulates the intracellular insulin-signaling pathway in pancreatic islets. Another aspect considered in this review is the source of FA for pancreatic islets. In addition to be exported to the medium, lipids can be transferred from leukocytes (macrophages) to pancreatic islets in co-culture. This process consists an additional source of FA that may plays a significant role to regulate insulin secretion.