Dietary fat promotes pathological insulin resistance through chronic inflammation. The inactivation of inflammatory proteins produced by macrophages improves diet-induced diabetes, but how nutrient-dense diets induce diabetes is unknown. Membrane lipids affect the innate immune response, which requires domains that influence high-fat-diet-induced chronic inflammation and alter cell function based on phospholipid composition. Endogenous fatty acid synthesis, mediated by fatty acid synthase (FAS), affects membrane composition. Here we show that macrophage FAS is indispensable for diet-induced inflammation. Deleting Fasn in macrophages prevents diet-induced insulin resistance, recruitment of macrophages to adipose tissue and chronic inflammation in mice. We found that FAS deficiency alters membrane order and composition, impairing the retention of plasma membrane cholesterol and disrupting Rho GTPase trafficking - a process required for cell adhesion, migration and activation. Expression of a constitutively active Rho GTPase, however, restored inflammatory signalling. Exogenous palmitate was partitioned to different pools from endogenous lipids and did not rescue inflammatory signalling. However, exogenous cholesterol, as well as other planar sterols, did rescue signalling, with cholesterol restoring FAS-induced perturbations in membrane order. Our results show that the production of endogenous fat in macrophages is necessary for the development of exogenous-fat-induced insulin resistance through the creation of a receptive environment at the plasma membrane for the assembly of cholesterol-dependent signalling networks.