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Genome-wide association studies (GWAS) have reproducibly associated variants within introns of FTO with increased risk for obesity and type 2 diabetes (T2D). Although the molecular mechanisms linking these noncoding variants with obesity are not immediately obvious, subsequent studies in mice demonstrated that FTO expression levels influence body mass and composition phenotypes. However, no direct connection between the obesity-associated variants and FTO expression or function has been made. Here we show that the obesity-associated noncoding sequences within FTO are functionally connected, at megabase distances, with the homeobox gene IRX3. The obesity-associated FTO region directly interacts with the promoters of IRX3 as well as FTO in the human, mouse and zebrafish genomes. Furthermore, long-range enhancers within this region recapitulate aspects of IRX3 expression, suggesting that the obesity-associated interval belongs to the regulatory landscape of IRX3. Consistent with this, obesity-associated single nucleotide polymorphisms are associated with expression of IRX3, but not FTO, in human brains. A direct link between IRX3 expression and regulation of body mass and composition is demonstrated by a reduction in body weight of 25 to 30% in Irx3-deficient mice, primarily through the loss of fat mass and increase in basal metabolic rate with browning of white adipose tissue. Finally, hypothalamic expression of a dominant-negative form of Irx3 reproduces the metabolic phenotypes of Irx3-deficient mice. Our data suggest that IRX3 is a functional long-range target of obesity-associated variants within FTO and represents a novel determinant of body mass and composition.