When nutrients are abundant, insulin-like peptides are secreted and promote the storage of glucose as triglycerides in lipid droplets in the fat body. During starvation, lipolysis is activated to provide energy for the body in the form of free fatty acids and glycerol. In mammals, fatty acids released during lipolysis also act intracellularly to dissociate the TORC2 complex, which is an upstream kinase in the insulin signaling pathway. Inhibiting lipolysis by adipocyte-specific deletion of adipocyte triglyceride lipase (ATGL) improves insulin sensitivity. Here we investigated whether lipolysis affects Drosophila insulin-like peptide (DILP) sensitivity in fruit fly larvae. We find that fat body-specific knockdown of the Drosophila ATGL homolog brummer (bmm) leads to triglyceride accumulation not only in the fasted but also in the fed state, indicating that Drosophila larvae exhibit basal lipolysis even during periods of nutrient intake. We examined whether loss of bmm affected DILP signaling in a model of inflammation-induced insulin resistance. Fat body-specific expression of the constitutively-active Toll10b receptor activates immune signaling and leads to reduced DILP signaling and, consequently, decreases in both triglyceride storage and cell size. We find that larvae expressing Toll10b in fat body are refractory to the triglyceride-elevating effects of bmm knockdown, suggesting that triglyceride storage defects in this background are due to reduced de novo lipogenesis and not elevated lipolysis. Accordingly, loss of bmm expression did not rescue cell size in clones of fat body cells expressing Toll10b, indicating that elevated lipolysis does not play a role in DILP resistance on this background. DILP signaling can be stimulated acutely by incubating larvae at 37˚C for two hours, a stimulus that activates TORC2 through an unknown mechanism. Wild type type but not TORC2-deficient rictor null larvae exhibit a robust increase in phosphorylation at the TORC2 site on Akt (Ser505) following heat exposure. However, Ser505 phosphorylation is reduced when fasted, lipolytic larvae are exposed to heat, providing a new model in which to study lipolysis and insulin signaling. Together, our results suggest that the physiological states such as fasting immune system activation, dictate the nature of the interactions that occur between the insulin signaling pathway and lipid anabolic and catabolic processes.