Insulin resistance in skeletal muscle in type 2 diabetes (T2D) is characterized by more pronounced metabolic and molecular defects than in obesity per se. There is increasing evidence that adipose tissue dysfunction contributes to obesity-induced insulin resistance in skeletal muscle. Here, we used an unbiased approach to examine if adipose tissue dysfunction is exaggerated in T2D and linked to diabetes-related mechanisms of insulin resistance in skeletal muscle. Transcriptional profiling and biological pathways analysis were performed in subcutaneous adipose tissue (SAT) and skeletal muscle biopsies from 17 patients with T2D and 19 glucose-tolerant, age and weight-matched obese controls. Findings were validated by qRT-PCR and western blotting of selected genes and proteins. Patients with T2D were more insulin resistant and had lower plasma adiponectin than obese controls. Transcriptional profiling showed downregulation of genes involved in mitochondrial oxidative phosphorylation and the tricarboxylic-acid cycle and increased expression of extracellular matrix (ECM) genes in SAT in T2D, whereas genes involved in proteasomal degradation were upregulated in the skeletal muscle in T2D. qRT-PCR confirmed most of these findings and showed lower expression of adiponectin in SAT and higher expression of myostatin in muscle in T2D. Interestingly, muscle expression of proteasomal genes correlated positively with SAT expression of ECM genes but inversely with the expression of ADIPOQ in SAT and plasma adiponectin. Protein content of proteasomal subunits and major ubiquitin ligases were unaltered in the skeletal muscle of patients with T2D. A transcriptional signature of exaggerated adipose tissue dysfunction in T2D, compared with obesity alone, is linked to low plasma adiponectin and increased transcriptional activation of proteasomal degradation in skeletal muscle.