Chronic inflammation in obese adipose tissue is linked to endoplasmic reticulum (ER) stress and systemic insulin resistance. Targeted deletion of the murine fatty acid binding protein (FABP4/aP2) uncouples obesity from inflammation although the mechanism underlying this finding has remained enigmatic. Here, we show that inhibition or deletion of FABP4/aP2 in macrophages results in increased intracellular free fatty acids (FFAs) and elevated expression of uncoupling protein 2 (UCP2) without concomitant increases in UCP1 or UCP3. Silencing of UCP2 mRNA in FABP4/aP2-deficient macrophages negated the protective effect of FABP loss and increased ER stress in response to palmitate or lipopolysaccharide (LPS). Pharmacologic inhibition of FABP4/aP2 with the FABP inhibitor HTS01037 also upregulated UCP2 and reduced expression of BiP, CHOP, and XBP-1s. Expression of native FABP4/aP2 (but not the non-fatty acid binding mutant R126Q) into FABP4/aP2 null cells reduced UCP2 expression, suggesting that the FABP-FFA equilibrium controls UCP2 expression. FABP4/aP2-deficient macrophages are resistant to LPS-induced mitochondrial dysfunction and exhibit decreased mitochondrial protein carbonylation and UCP2-dependent reduction in intracellular reactive oxygen species. These data demonstrate that FABP4/aP2 directly regulates intracellular FFA levels and indirectly controls macrophage inflammation and ER stress by regulating the expression of UCP2.