Obesity is characterized by insulin-resistance (IR), enhanced lipolysis, and ectopic, inflamed fat. We related the histology of subcutaneous (SAT), visceral fat (VAT), and skeletal muscle to the metabolic abnormalities, and tested their mutual changes after bariatric surgery in type 2 diabetic (T2D) and weight-matched non-diabetic (ND) patients. We measured IR (insulin clamp), lipolysis (2H5-glycerol infusion), ß-cell glucose-sensitivity (ß-GS, mathematical modeling), and VAT, SAT, and rectus abdominis histology (light and electron microscopy). Presurgery, SAT and VAT showed signs of fibrosis/necrosis, small mitochondria, free interstitial lipids, thickened capillary basement membrane. Compared to ND, T2D had impaired ß-GS, intracapillary neutrophils and higher intramyocellular fat, adipocyte area in VAT, crown-like structures (CLS) in VAT and SAT with rare structures (cyst-like) ~10-fold larger than CLS. Fat expansion was associated with enhanced lipolysis and IR. VAT histology and intramyocellular fat were related to impaired ß-GS. Postsurgery, IR and lipolysis improved in all, ß-GS improved in T2D. Muscle fat infiltration was reduced, adipocytes were smaller and richer in mitochondria, and CLS density in SAT was reduced. In conclusion, IR improves proportionally to weight loss but remains subnormal, whilst SAT and muscle changes disappear. In T2D postsurgery, some VAT pathology persists and beta-cell dysfunction improves but is not normalized.