Fsp27, a member of the Cide family proteins, was shown to localize to lipid droplet and promote lipid storage in adipocytes. We aimed to understand the biological role of Fsp27 in regulating adipose tissue differentiation, insulin sensitivity and energy balance. Fsp27(-/-) mice and Fsp27/lep double deficient mice were generated and we examined the adiposity, whole body metabolism, BAT and WAT morphology, insulin sensitivity, mitochondrial activity, and gene expression changes in these mouse strains. Furthermore, we isolated mouse embryonic fibroblasts (MEFs) from wildtype and Fsp27(-/-) mice, followed by their differentiation into adipocytes in vitro. We found that Fsp27 is expressed in both brown adipose tissue (BAT) and white adipose tissue (WAT) and its levels were significantly elevated in the WAT and liver of leptin-deficient ob/ob mice. Fsp27(-/-) mice had increased energy expenditure, lower levels of plasma triglycerides and free fatty acids. Furthermore, Fsp27(-/-)and Fsp27/lep double-deficient mice are resistant to diet-induced obesity and display increased insulin sensitivity. Moreover, white adipocytes in Fsp27(-/-) mice have reduced triglycerides accumulation and smaller lipid droplets, while levels of mitochondrial proteins, mitochondrial size and activity are dramatically increased. We further demonstrated that BAT-specific genes and key metabolic controlling factors such as FoxC2, PPAR and PGC1alpha were all markedly upregulated. In contrast, factors inhibiting BAT differentiation such as Rb, p107 and RIP140 were down-regulated in the WAT of Fsp27(-/-) mice. Remarkably, Fsp27(-/-) MEFs differentiated in vitro show many brown adipocyte characteristics in the presence of the thyroid hormone triiodothyronine (T3). Our data thus suggest that Fsp27 acts as a novel regulator in vivo to control WAT identity, mitochondrial activity and insulin sensitivity.