Fibrosis is a hallmark of adipose tissue (AT) dysfunction and obesity-associated insulin resistance that results from an impaired collagen turnover. Peptidase D (PEPD) plays a vital role in collagen turnover by degrading proline-containing dipeptides. Nevertheless, its specific function and importance in AT is unknown. GWAS identified the rs731839 variant in the locus near PEPD that uncouples obesity from insulin resistance and dyslipidaemia, thus indicating that defective PEPD might impair AT remodelling and exacerbate metabolic complications. Here we show that in human and murine obesity, PEPD expression and activity decrease in AT, coupled to the release of PEPD systemically. Both events, in turn, are associated with the accumulation of fibrosis in AT and insulin resistance. Using pharmacologic and genetic animal models of PEPD down-regulation, we show that whereas dysfunctional PEPD activity provokes AT fibrosis, it is the PEPD secreted by AT the main contributor to inflammation, insulin resistance and metabolic dysfunction. Also, PEPD originated in inflammatory macrophages (Mɸ), plays an essential role promoting fibro-inflammatory responses via activation of EGFR in Mɸ and preadipocytes. Using genetic ablation of pepd in Mɸ that prevents obesity-induced PEPD release, also averts AT fibro-inflammation and obesity-associated metabolic dysfunctions. Taking advantage of factor analysis, we have identified the coupling of prolidase decreased activity and increased systemic levels of PEPD as the essential pathogenic triggers of AT fibrosis and insulin resistance. Thus, PEPD produced by Mɸ qualifies as a biomarker of AT fibro-inflammation and a therapeutic target for AT fibrosis and obesity-associated insulin resistance and type 2 diabetes.