Diabetic sarcopenia (DS) is a common but often ignored skeletal muscle complication in individuals with diabetes mellitus. It is characterized by progressive loss of skeletal muscle mass, reduced muscle strength, and impaired physical performance, which may further increase the risk of falls, disabilities, metabolic disorders, and adverse clinical outcomes. Traditionally, DS has been attributed mainly to hyperglycemia, insulin resistance, aging-related muscle decline, and chronic complications of diabetes. However, increasing evidence suggests that lipid metabolic disturbance and pathological lipid metabolic reprogramming are not merely secondary consequences of diabetes, but may actively participate in the initiation and progression of DS. Under diabetic conditions, impaired fatty acid uptake, transport, oxidation, and storage disrupt skeletal muscle metabolic homeostasis, leading to ectopic lipid deposition and accumulation of lipotoxic intermediates. These lipid-derived metabolites can aggravate insulin resistance, impair mitochondrial energy production, enhance oxidative stress, activate chronic low-grade inflammation, and disturb protein synthesis and degradation balance, thereby accelerating skeletal muscle atrophy and functional decline. Lipid metabolic dysregulation may also interact with multiple pathological processes involved in DS, including mitochondrial dysfunction, inflammatory signaling, oxidative damage, impaired autophagy, and gut microbiota imbalance. These mechanisms do not occur independently; instead, they form a complex bidirectional vicious cycle with diabetes-related metabolic disorders. Specifically, mitochondrial dysfunction reduces fatty acid oxidative capacity, which further promotes lipid accumulation and lipotoxicity. Inflammatory activation can impair insulin signaling and muscle protein metabolism, while lipid overload may in turn amplify inflammatory responses. Similarly, gut microbiota dysbiosis and altered microbial metabolites may influence systemic inflammation, lipid metabolism, and skeletal muscle homeostasis. Therefore, lipid metabolic reprogramming provides an important mechanistic perspective for understanding the progression of DS from metabolic disturbance to structural and functional muscle impairment. Exercise intervention is an effective and clinically feasible non-pharmacological strategy for the prevention and management of DS. Both aerobic exercise and resistance training have been shown to improve insulin sensitivity, enhance fatty acid oxidation, increase mitochondrial biogenesis, reduce ectopic lipid deposition, and attenuate lipotoxic metabolite accumulation. These adaptations not only improved glucose and lipid metabolism, but also increased the preservation of muscle mass, muscle strength, and physical function. Moreover, combined exercise strategies may provide complementary benefits by integrating the metabolic advantages of aerobic exercise with the anabolic and functional effects of resistance training. Based on analyses of publicly available datasets and literature evidences, this review systematically summarizes the role of lipid metabolic disorders in the pathogenesis of DS, with particular attention to the molecular mechanisms linking lipid dysregulation to insulin resistance, chronic inflammation, oxidative stress, mitochondrial dysfunction, and gut microbiota disturbance. Furthermore, this review discusses the potential mechanisms by which exercise intervention improves DS through the regulation of lipid metabolic reprogramming, and outlines exercise prescription strategies in terms of modality, intensity, frequency, and duration. Understanding the interaction between lipid metabolism and skeletal muscle dysfunction may provide new theoretical evidence for early identification, mechanistic research, and precision exercise therapy in DS. Overall, targeting pathological lipid metabolic reprogramming through exercise intervention represents a promising and clinically actionable approach for improving muscle health and prognosis in individuals with DS.