Plasma free fatty acids (FFA) play important physiological roles in skeletal muscle, heart, liver and pancreas. However, chronically elevated plasma FFA appear to have pathophysiological consequences. Elevated FFA concentrations are linked with the onset of peripheral and hepatic insulin resistance and, while the precise action in the liver remains unclear, a model to explain the role of raised FFA in the development of skeletal muscle insulin resistance has recently been put forward. Over 30 years ago, Randle proposed that FFA compete with glucose as the major energy substrate in cardiac muscle, leading to decreased glucose oxidation when FFA are elevated. Recent data indicate that high plasma FFA also have a significant role in contributing to insulin resistance. Elevated FFA and intracellular lipid appear to inhibit insulin signalling, leading to a reduction in insulin-stimulated muscle glucose transport that may be mediated by a decrease in GLUT-4 translocation. The resulting suppression of muscle glucose transport leads to reduced muscle glycogen synthesis and glycolysis. In the liver, elevated FFA may contribute to hyperglycaemia by antagonizing the effects of insulin on endogenous glucose production. FFA also affect insulin secretion, although the nature of this relationship remains a subject for debate. Finally, evidence is discussed that FFA represent a crucial link between insulin resistance and beta-cell dysfunction and, as such, a reduction in elevated plasma FFA should be an important therapeutic target in obesity and type 2 diabetes.