Obesity is a pathophysiological condition where excess free fatty acids (FFA) target and promote the dysfunctioning of insulin sensitive tissues and of pancreatic β cells. This leads to the dysregulation of glucose homeostasis, which culminates in the onset of type 2 diabetes (T2D). FFA, which accumulate in these tissues, are metabolized as lipid derivatives such as ceramide, and the ectopic accumulation of the latter has been shown to lead to lipotoxicity. Ceramide is an active lipid that inhibits the insulin signaling pathway as well as inducing pancreatic β cell death. In mammals, ceramide is a key lipid intermediate for sphingolipid metabolism as is sphingosine-1-phosphate (S1P). S1P levels have also been associated with the development of obesity and T2D. In this review, the current knowledge on S1P metabolism in regulating insulin signaling in pancreatic β cell fate and in the regulation of feeding by the hypothalamus in the context of obesity and T2D is summarized. It demonstrates that S1P can display opposite effects on insulin sensitive tissues and pancreatic β cells, which depends on its origin or its degradation pathway.