To test the hypothesis that free fatty acids (FFAs) modulate microvascular function and that this contributes to obesity-associated insulin resistance, hypertension, and microangiopathy, we examined the effects of both FFA elevation in lean women and FFA lowering in obese women on skin microvascular function. A total of 16 lean and 12 obese women underwent, respectively, Intralipid plus heparin (or saline) infusion and overnight acipimox (or placebo) treatment. We measured capillary recruitment with capillaroscopy and endothelium-(in)dependent vasodilation by iontophoresis of acetylcholine and sodium nitroprusside before and during hyperinsulinemia (40 mU · m⁻² · min⁻¹). FFA elevation impaired capillary recruitment and acetylcholine-mediated vasodilation before (44.6 ± 16.8 vs. 56.9 ± 18.9%, P < 0.05; and 338 ± 131 vs. 557 ± 162%, P < 0.01, respectively) and during (54.0 ± 21.3 vs. 72.4 ± 25.4%, P < 0.01; and 264 ± 186 vs. 685 ± 199%, P < 0.01, respectively) hyperinsulinemia. FFA lowering improved capillary recruitment before (50.9 ± 14.6 vs. 37.4 ± 9.3%, P < 0.01) and during (66.8 ± 20.6 vs. 54.8 ± 15.4%, P < 0.05) hyperinsulinemia. Changes in FFA levels were inversely associated with changes in capillary recruitment and insulin sensitivity in lean (r = −0.46, P = 0.08; and r = −0.56, P = 0.03) and in obese (r = −0.70, P = 0.02; and r = −0.62, P = 0.04) women. Regression analyses showed that changes in capillary recruitment statistically explained ∼29% of the association between changes in FFA levels and insulin sensitivity. In conclusion, FFA levels modulate microvascular function and may contribute to obesity-associated insulin resistance, hypertension, and microangiopathy.