An impaired fat oxidation has been implicated to play a role in the etiology of obesity, but it is unclear to what extent impaired fat mobilization from adipose tissue or oxidation of fat is responsible. The present study aimed to examine fat mobilization from adipose tissue and whole body fat oxidation stimulated by exercise in seven formerly obese women (FO) and eight matched controls (C). Lipolysis in the periumbilical subcutaneous adipose tissue, whole body energy expenditure (EE), and substrate oxidation rates were measured before, during, and after a 60-min bicycle exercise bout of moderate intensity. Lipolysis was assessed by glycerol release using microdialysis and blood flow measurement by ¹³³Xe clearance technique. The FO women had lower resting EE than C (3.77 ± 1.01 vs. 4.88 ± 0.74 kJ/min,P < 0.05) but responded similarly to exercise. Adipose tissue glycerol release was twice as high in FO than in C at rest (0.455 ± 0.299 vs. 0.206 ± 0.102 μmol ⋅ 100 g⁻¹ ⋅ min⁻¹,P < 0.05) but increased similarly in FO and C in response to exercise. Despite higher plasma nonesterified fatty acids (NEFA) in FO (P < 0.001), fat oxidation rates during rest and recovery were lower in FO than in C (1.32 ± 0.84 vs. 3.70 ± 0.57 kJ/min,P < 0.02) and fat oxidation for a given plasma NEFA concentration was lower at rest (P < 0.001) and during exercise (P = 0.01) in the formerly obese group. In conclusion, fat mobilization both at rest and during exercise is intact in FO, whereas fat oxidation is subnormal despite higher circulation NEFA levels. The lower resting EE and the failure to use fat as fuel contribute to a positive fat balance and weight gain in FO subjects.