Impaired white adipose tissue (WAT) function has been recognized as a critical early event in obesity‐driven disorders, but high buoyancy, fragility, and heterogeneity of primary adipocytes have largely prevented their use in drug discovery efforts highlighting the need for human stem cell‐based approaches. Here, human stem cells are utilized to derive metabolically functional 3D adipose tissue (iADIPO) in a microphysiological system (MPS). Surprisingly, previously reported WAT differentiation approaches create insulin resistant WAT ill‐suited for type‐2 diabetes mellitus drug discovery. Using three independent insulin sensitivity assays, i.e., glucose and fatty acid uptake and suppression of lipolysis, as the functional readouts new differentiation conditions yielding hormonally responsive iADIPO are derived. Through concomitant optimization of an iADIPO‐MPS, it is abled to obtain WAT with more unilocular and significantly larger (≈40%) lipid droplets compared to iADIPO in 2D culture, increased insulin responsiveness of glucose uptake (≈2–3 fold), fatty acid uptake (≈3–6 fold), and ≈40% suppressing of stimulated lipolysis giving a dynamic range that is competent to current in vivo and ex vivo models, allowing to identify both insulin sensitizers and desensitizers. This study uses human stem cells to derive metabolically functional 3D adipose tissue in a microphysiological system. Through concomitant optimization, the adipose system shows mostly unilocular and significantly larger lipid droplets, increased insulin responsiveness of glucose uptake, fatty acid uptake, and suppressing of stimulated lipolysis compared to 2D culture, providing a good dynamic range to identify insulin sensitizers and desensitizers.