Mutations in the 1-acylglycerol-3-phosphate-O-acyltransferase 2 (AGPAT2) gene have been identified in individuals affected with congenital generalized lipodystrophy (CGL). AGPAT2 catalyzes acylation of lysophosphatidic acid to phosphatidic acid, a precursor for both triacylglycerol (TAG) and phospholipid synthesis. Recent studies suggest that reduced AGPAT2 enzymatic activity may underlie the CGL clinical phenotype. To gain insight into how altered AGPAT2 activity causes lipodystrophy, we examined the effect of knockdown of AGPAT2 expression in preadipocytes on TAG synthesis and storage, and on adipocyte differentiation. We show that AGPAT2 mRNA expression is induced 30-fold during adipocyte differentiation and that AGPAT2 enzymatic activity is required for TAG mass accumulation in mature adipocytes. We demonstrate that small interference RNA-mediated knockdown of AGPAT2 expression prevents appropriate early induction of C/EBPbeta and PPARgamma, key transcriptional activators of the adipogenic program, and delays expression of multiple adipocyte-related genes. The unexpected finding, that levels of several phospholipid species, including phosphatidic acid (PA), are elevated in TAG-depleted adipocytes with AGPAT2 knockdown, suggests that impaired AGPAT2 activity affects availability of PA for TAG synthesis but not overall PA synthesis nor utilization of PA for phospholipid synthesis. These findings underscore the importance of an AGPAT2-mediated metabolic pathway in adipocyte differentiation.