In adipocytes, lipolysis is a highly regulated process involving hormonal signals, lipid droplet-associated proteins, and lipases. The discovery of new lipid droplet-associated proteins added complexity to the current model of lipolysis. In this study, we used cultured human adipocytes to demonstrate that fat-specific protein 27 (FSP27), an abundantly expressed protein in adipocytes, regulates both basal and stimulated lipolysis by interacting with adipose triglyceride lipase (ATGL, also called desnutrin or PNPLA2). We identified a core domain of FSP27, amino acids 120-220, that interacts with ATGL to inhibit its lipolytic function and promote triglyceride storage. We also defined the role of FSP27 in free fatty acid-induced insulin resistance in adipocytes. FSP27 depletion in human adipocytes increased lipolysis and inhibited insulin signaling by decreasing AKT phosphorylation. However, reducing lipolysis by either depletion of ATGL or expression of exogenous full-length FSP27 or amino acids 120-220 protected human adipocytes against the adverse effects of free fatty acids on insulin signaling. In embryonic fibroblasts derived from ATGL KO mice, exogenous free fatty acids did not affect insulin sensitivity. Our results demonstrate a crucial role for FSP27-ATGL interactions in regulating lipolysis, triglyceride accumulation, and insulin signaling in human adipocytes.