The Drosophila fat body is a liver- and adipose-like tissue that stores fat and serves as a detoxifying and immune responsive organ. We have previously shown that a high sugar diet leads to elevated hemolymph glucose and systemic insulin resistance in developing larvae and adults. Here, we used stable isotope tracer feeding to demonstrate that rearing larvae on high sugar diets impaired the synthesis of esterified fatty acids from dietary glucose. Fat body lipid profiling revealed changes in both carbon chain length and degree of unsaturation of fatty acid substituents, particularly in stored triglycerides. We tested the role of the fat body in larval tolerance of caloric excess. Our experiments demonstrated that lipogenesis was necessary for animals to tolerate high sugar feeding as tissue-specific loss of orthologs of carbohydrate response element-binding protein or stearoyl-CoA desaturase 1 resulted in lethality on high sugar diets. By contrast, increasing the fat content of the fat body by knockdown of king-tubby was associated with reduced hyperglycemia and improved growth and tolerance of high sugar diets. Our work supports a critical role for the fat body and the Drosophila carbohydrate response element-binding protein ortholog in metabolic homeostasis in Drosophila.