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. DOI: http://dx.doi.org/10.7554/eLife.03851.001, eLife digest Fat tissue is essential for health. Fat cells store energy and release it when it is needed; they also release hormones that are important for the health of our heart and for regulating our metabolism. One of these hormones, adiponectin, helps cells to remove fat molecules from the bloodstream. This allows the body to maintain appropriate cholesterol levels and prevents fatty build-ups from blocking blood vessels, which is associated with heart disease. Adiponectin also helps cells respond to insulin, a hormone that regulates blood sugar levels, and thus helps to prevent diabetes. Despite this hormone's important roles in health, mice that lack adiponectin can thrive under normal conditions. Adiponectin becomes essential, however, when blood sugar or fat levels are considerably altered. For example, when mice without adiponectin are fed a high fat-content diet, they become insulin-resistant. Moreover, certain diabetes drugs that boost insulin sensitivity only work if adiponectin is present in the body. Adiponectin helps to keep the β-cells that produce insulin alive. In patients with diabetes, β-cells slowly die, and this leads to a poor insulin response and an imbalance in the amount of fats and sugars in the cells. This is toxic to the β-cells; and as more β-cells die, less insulin is produced to control sugar levels, and the condition worsens. Adiponectin appears to protect the β-cells against this vicious cycle, but the details of how it does so are unclear. Ye et al. used a mouse model in which β-cells were destroyed to see what adiponectin does when insulin is in short supply. When insulin levels were extremely low, adiponectin was found to help one type of fat tissue absorb fat molecules from the bloodstream, which reduced blood cholesterol levels. It also protects fat cells from being destroyed when insulin levels are low. Ye et al. also found that mice that lack both insulin and adiponectin lose excessive amounts of fat tissue and develop high blood cholesterol levels, which lead to death. Increasing adiponectin levels in insulin-deficient mice, however, improves their blood cholesterol levels and protects β-cells from being destroyed. This allows the β-cells to begin regenerating. As the β-cells regenerate, the insulin-deficient mice developed better control over their blood sugar. Many people with type-1 diabetes (which is caused by their own immune system destroying their β-cells) currently rely on insulin injections and restricted diets to manage their condition. Ye et al.'s findings might lead to new strategies to restore β-cell production and blood sugar control; as such these findings will have important implications for the management of type-1 diabetes. DOI: http://dx.doi.org/10.7554/eLife.03851.002