The limited expandability of subcutaneous adipose tissue, due to reduced ability to recruit and differentiate new adipocytes, prevents its buffering effect in obesity and is characterized by expanded adipocytes (hypertrophic obesity). Bone morphogenetic protein-4 (BMP4) plays a key role in regulating adipogenic precursor cell commitment and differentiation. We found BMP4 to be induced and secreted by differentiated (pre)adipocytes, and BMP4 was increased in large adipose cells. However, the precursor cells exhibited a resistance to BMP4 owing to increased secretion of the BMP inhibitor Gremlin-1 (GREM1). GREM1 is secreted by (pre)adipocytes and is an inhibitor of both BMP4 and BMP7. BMP4 alone, and/or silencing GREM1, increased transcriptional activation of peroxisome proliferator-activated receptor γ and promoted the preadipocytes to assume an oxidative beige/brown adipose phenotype including markers of increased mitochondria and PGC1α. Driving white adipose differentiation inhibited the beige/brown markers, suggesting the presence of multipotent adipogenic precursor cells. However, silencing GREM1 and/or adding BMP4 during white adipogenic differentiation reactivated beige/brown markers, suggesting that increased BMP4 preferentially regulates the beige/brown phenotype. Thus, BMP4, secreted by white adipose cells, is an integral feedback regulator of both white and beige adipogenic commitment and differentiation, and resistance to BMP4 by GREM1 characterizes hypertrophic obesity.