Interactions between adipose tissue, liver and immune system are at the center of metabolic dysfunction-associated steatotic liver disease and type 2 diabetes. To address the need for an accurate in vitro model, we establish an interconnected microphysiological system (MPS) containing white adipocytes, hepatocytes and proinflammatory macrophages derived from isogenic human induced pluripotent stem cells. Using this MPS, we find that increasing the adipocyte-to-hepatocyte ratio moderately affects hepatocyte function, whereas macrophage-induced adipocyte inflammation causes lipid accumulation in hepatocytes and MPS-wide insulin resistance, corresponding to initiation of metabolic dysfunction-associated steatotic liver disease. We also use our MPS to identify and characterize pharmacological intervention strategies for hepatic steatosis and systemic insulin resistance and find that the glucagon-like peptide-1 receptor agonist semaglutide improves hepatocyte function by acting specifically on adipocytes. These results establish our MPS modeling the adipose tissue-liver axis as an alternative to animal models for mechanistic studies or drug discovery in metabolic diseases.