Obesity leads to chronic, systemic inflammation and can lead to insulin resistance (IR), β-cell dysfunction, and ultimately type 2 diabetes (T2D). This chronic inflammatory state contributes to long-term complications of diabetes, including non-alcoholic fatty liver disease (NAFLD), retinopathy, cardiovascular disease, and nephropathy, and may underlie the association of type 2 diabetes with other conditions such as Alzheimer's disease, polycystic ovarian syndrome, gout, and rheumatoid arthritis. Here, we review the current understanding of the mechanisms underlying inflammation in obesity, T2D, and related disorders. We discuss how chronic tissue inflammation results in IR, impaired insulin secretion, glucose intolerance, and T2D and review the effect of inflammation on diabetic complications and on the relationship between T2D and other pathologies. In this context, we discuss current therapeutic options for the treatment of metabolic disease, advances in the clinic and the potential of immune-modulatory approaches.