Obesity is the major contributing factor for the increased prevalence of type 2 diabetes (T2D) in recent years. Sustained positive influx of lipids is considered to be a precipitating factor for beta cell dysfunction and serves as a connection between obesity and T2D. Importantly, fatty acids (FA), a key building block of lipids, are a double‐edged sword for beta cells. FA acutely increase glucose‐stimulated insulin secretion through cell‐surface receptor and intracellular pathways. However, chronic exposure to FA, combined with elevated glucose, impair the viability and function of beta cells in vitro and in animal models of obesity (glucolipotoxicity), providing an experimental basis for the propensity of beta cell demise under obesity in humans. To better understand the two‐sided relationship between lipids and beta cells, we present a current view of acute and chronic handling of lipids by beta cells and implications for beta cell function and health. We also discuss an emerging role for lipid droplets (LD) in the dynamic regulation of lipid metabolism in beta cells and insulin secretion, along with a potential role for LD under nutritional stress in beta cells, and incorporate recent advancement in the field of lipid droplet biology. Obesity is the major contributing factor for the increased prevalence of type 2 diabetes (T2D) in recent years. Sustained positive influx of lipids is considered to be a precipitating factor for beta cell dysfunction and serves as a connection between obesity and T2D. Importantly, fatty acids (FA), a key building block of lipids, are a double‐edged sword for beta cells. FA acutely increase glucose‐stimulated insulin secretion through cell‐surface receptor and intracellular pathways. However, chronic exposure to FA, combined with elevated glucose, impair the viability and function of beta cells in vitro and in animal models of obesity (glucolipotoxicity), providing an experimental basis for the propensity of beta cell demise under obesity in humans.