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Caveolin-1 (cav1) is an important structural and signaling component of plasma membrane invaginations called caveolae and is abundant in adipocytes. As previously reported, adipocyte-specific ablation of the cav1 gene (ad-cav1KO mouse) does not result in elimination of the protein, as cav1 protein traffics to adipocytes from neighboring endothelial cells. However, this mouse is a functional knockout as adipocyte caveolar structures are depleted. Compared to controls, ad-cav1KO mice on a high-fat diet (HFD) display improved whole-body glucose clearance despite complete loss of glucose-stimulated insulin secretion, blunted insulin-stimulated AKT activation in metabolic tissues and partial lipodystrophy. The cause is increased insulin-independent glucose uptake by white adipose tissue (AT) and reduced hepatic gluconeogenesis. Furthermore, high fat fed ad-cav1KO mice display significant AT inflammation, fibrosis, mitochondrial dysfunction, and dysregulated lipid metabolism. The glucose clearance phenotype of the ad-cav1KO mice is at least partially mediated by AT small extracellular vesicles (AT-sEVs). Injection of control mice with AT-sEVs from ad-cav1KO mice phenocopies ad-cav1KO characteristics. Interestingly, AT-sEVs from ad-cav1KO mice propagate the phenotype of the AT to the liver. These data indicate that adipocyte cav1 is essential for healthy adaptation of the AT to overnutrition and prevents aberrant propagation of negative phenotypes to other organs by EVs.