Mutations in BSCL2 underlie human congenital generalized lipodystrophy. We inactivated Bscl2 in mice to examine the mechanisms whereby absence of Bscl2 leads to adipose tissue loss and metabolic disorders. Bscl2(-/-) mice develop severe lipodystrophy of white adipose tissue (WAT), dyslipidemia, insulin resistance, and hepatic steatosis. In vitro differentiation of both Bscl2(-/-) murine embryonic fibroblasts (MEFs) and stromal vascular cells (SVCs) reveals normal early-phase adipocyte differentiation but a striking failure in terminal differentiation due to unbridled cyclic AMP (cAMP)-dependent protein kinase A (PKA)-activated lipolysis, which leads to loss of lipid droplets and silencing of the expression of adipose tissue-specific transcription factors. Importantly, such defects in differentiation can be largely rescued by inhibitors of lipolysis but not by a gamma peroxisome proliferator-activated receptor (PPARγ) agonist. The residual epididymal WAT (EWAT) in Bscl2(-/-) mice displays enhanced lipolysis. It also assumes a "brown-like" phenotype with marked upregulation of UCP1 and other brown adipose tissue-specific markers. Together with decreased Pref1 but increased C/EBPβ levels, these changes highlight a possible increase in cAMP signaling that impairs terminal adipocyte differentiation in the EWAT of Bscl2(-/-) mice. Our study underscores the fundamental role of regulated cAMP/PKA-mediated lipolysis in adipose differentiation and identifies Bscl2 as a novel cell-autonomous determinant of activated lipolysis essential for terminal adipocyte differentiation.