Purpose: To examine the association between insulin sensitivity and adiposity in children stratified according to their body mass index (BMI: normal weight, NW; overweight or obese, OW/OB) and body-fat percentage (BF%: adipose or NonAdipose), and determine whether cardiorespiratory fitness (CRF) ameliorates any deleterious associations. Methods: This prospective cohort study comprises a cross-sectional and longitudinal analyses of data collected at baseline and 2 years later on children (7.7-13.4 years) attending public school in Denmark. Levels of CRF were measured using the Andersen test, whereas BF% was measured by dual-energy X-ray absorptiometry (DXA). Fasting plasma glucose and insulin concentrations were measured and the homoeostatic model assessment of insulin resistance (HOMA-IR) used to assess insulin sensitivity. Results: Approximately 8% of children classified as normal weight by BMI had high BF% (NW + Adipose). Children with high BF% had significantly higher insulin (NW + adipose: 32.3%; OW/OB + Adipose: 52.2%) and HOMA-IR scores (NW + Adipose: 32.3%; OW/OB + Adipose: 55.3%) than children classified as NW without high BF% (reference group; NW + NonAdipose). Adjusting for CRF reduced this difference, but did not completely ameliorate these associations. Longitudinally, children with high BF% (OW/OB + Adipose or NW + Adipose) had significantly worse insulin sensitivity 2 years later than NW + NonAdipose children (All p < 0.001). The few children (n = 14) who improved their BMI or BF% during the 2 years follow-up, no longer had significantly worse insulin sensitivity than children with NW + NonAdipose. Conclusion: High BF% in children is associated with significantly lower insulin sensitivity even when BMI is considered NW. Longitudinally, insulin sensitivity is lower in children with high BF% with or without high BMI. The CRF was a significant covariate in these models, but CRF did not completely ameliorate the effects of high BF% on insulin sensitivity.