A clear relationship exists between visceral obesity and type 2 diabetes, whereas subcutaneous obesity is comparatively benign. Here, we show that adipocyte-specific deletion of the coregulatory protein PRDM16 caused minimal effects on classical brown fat but markedly inhibited beige adipocyte function in subcutaneous fat following cold exposure or β3-agonist treatment. These animals developed obesity on a high-fat diet, with severe insulin resistance and hepatic steatosis. They also showed altered fat distribution with markedly increased subcutaneous adiposity. Subcutaneous adipose tissue in mutant mice acquired many key properties of visceral fat, including decreased thermogenic and increased inflammatory gene expression and increased macrophage accumulation. Transplantation of subcutaneous fat into mice with diet-induced obesity showed a loss of metabolic benefit when tissues were derived from PRDM16 mutant animals. These findings indicate that PRDM16 and beige adipocytes are required for the "browning" of white fat and the healthful effects of subcutaneous adipose tissue.