Increased plasma non-esterified fatty acids (NEFAs) link obesity with insulin resistance and type 2 diabetes mellitus (T2DM). However, in contrast to the saturated FA (SFA) palmitic acid, the monounsaturated FA (MUFA) oleic acid elicits beneficial effects on insulin sensitivity, and the dietary palmitic acid:oleic acid ratio impacts diabetes risk in humans. Here we review recent mechanistic insights into the beneficial effects of oleic acid compared with palmitic acid on insulin resistance and T2DM, including its anti-inflammatory actions, and its capacity to inhibit endoplasmic reticulum (ER) stress, prevent attenuation of the insulin signaling pathway, and improve β cell survival. Understanding the molecular mechanisms of the antidiabetic effects of oleic acid may contribute to understanding the benefits of this FA in the prevention or delay of T2DM. Substituting SFAs by oleic acid in the diet improves insulin sensitivity in humans. Preclinical studies have shed light on the molecular mechanisms by which oleic acid prevents palmitic acid-induced inflammation and insulin resistance in adipose tissue, liver, skeletal muscle, and pancreas. The hypothalamus also senses oleic acid, where it activates a neuronal network that suppresses VLDL-TAG secretion in liver. Oleic acid protects against cardiovascular insulin resistance and the atherosclerotic process. Some of the effects of oleic acid are mediated by preventing the reduction in palmitic acid-mediated AMPK activity, resembling the action of metformin.