Leptin is currently believed to control body composition largely, if not entirely, via hypothalamic receptors that regulate food intake and thermogenesis. Here we demonstrate direct extraneural effects of leptin to deplete fat content of both adipocytes and nonadipocytes to levels far below those of pairfed controls. In cultured pancreatic islets, leptin lowered triglyceride (TG) content by preventing TG formation from free fatty acids (FFA) and by increasing FFA oxidation. In vivo hyperleptinemia, induced in normal rats by adenovirus gene transfer, depleted TG content in liver, skeletal muscle, and pancreas without increasing plasma FFA or ketones, suggesting intracellular oxidation. In islets of obese Zucker Diabetic Fatty rats with leptin receptor mutations, leptin had no effect in vivo or in vitro. The TG content was ≈20 times normal, and esterification capacity was increased 3- to 4-fold. Thus, in rats with normal leptin receptors but not in Zucker Diabetic Fatty rats, nonadipocytes and adipocytes esterify FFA, store them as TG, and later oxidize them intracellularly via an “indirect pathway” of intracellular fatty acid metabolism controlled by leptin. By maintaining insulin sensitivity and preventing islet lipotoxicity, this activity of leptin may prevent adipogenic diabetes.