The expansion of adipose tissue (AT) is, by definition, a hallmark of obesity. However, not all increases in fat mass are associated with pathophysiological cues. Indeed, whereas a "healthy" fat mass accrual, mainly in the subcutaneous depots, preserves metabolic homeostasis, explaining the occurrence of the metabolically healthy obese phenotype, "unhealthy" AT expansion is importantly associated with insulin resistance/type 2 diabetes and the metabolic syndrome. The development of a dysfunctional adipose organ may find mechanistic explanation in a reduced ability to recruit new and functional (pre)adipocytes from undifferentiated precursor cells. Such a failure of the adipogenic process underlies the "AT expandability" paradigm. The inability of AT to expand further to store excess nutrients, rather than obesity per se, induces a diabetogenic milieu by promoting the overflow and the ectopic deposition of fatty acids in insulin-dependent organs (i.e., lipotoxicity), the secretion of various metabolically detrimental adipose-derived hormones (i.e., adipokines and lipokines), and the occurrence of local and systemic inflammation and oxidative stress. Hitherto, fatty acids (i.e., lipokines) and the oxidation by-products of cholesterol and polyunsaturated fatty acids, such as nonenzymatic oxysterols and reactive aldehyde species, respectively, emerge as key modulators of (pre)adipocyte signaling through Wnt/β-catenin and MAPK pathways and potential regulators of glucose homeostasis. These and other mechanistic insights linking adipose dysfunction, oxidative stress, and impairment of glucose homeostasis are discussed in this review article, which focuses on adipose peroxidation as a potential instigator of, and a putative therapeutic target for, obesity-associated metabolic dysfunctions.