While feast and famine cycles illustrate that adipose tissue remodelling in response to fluctuations in nutrient availability is essential for maintaining metabolic homeostasis, the underlying mechanisms remain poorly understood. We identify FGF1 as a critical transducer in this process and link its regulation to the nuclear receptor PPARγ, the adipocyte master regulator and target of the thiazolidinedione (TZD) class of insulin sensitizing drugs. We show that FGF1 is highly induced in adipose tissue in response to high-fat diet (HFD) and that mice lacking FGF1 develop an aggressive diabetic phenotype coupled to aberrant adipose expansion when challenged with HFD. Further analysis of adipose depots revealed multiple histopathologies in the vasculature network, inflammatory immune compartments and adipocyte size distribution. Upon HFD withdrawal, this inflamed adipose tissue fails to properly resolve as evidenced by extensive fat necrosis. Mechanistically, we show that adipose induction of FGF1 is regulated by a promoter proximal PPAR response element, and that this PPARγ-FGF1 axis is evolutionarily conserved in mammals. Finally, in diabetic patients FGF1 expression in adipocytes is induced by pharmacological activation of PPARγ and this induction correlates with the efficacy of TZDs to lower fasting glucose levels. This work describes the first phenotype of the FGF1 knockout mouse and establishes FGF1 as a new member of the NR-FGF axis critical for maintaining metabolic homeostasis and insulin sensitization.