Insulin resistance (IR) is the pathophysiological hallmark of nonalcoholic fatty liver disease (NAFLD), one of the most common causes of chronic liver disease in Western countries. We review the definition of IR, the methods for the quantitative assessment of insulin action, the pathophysiology of IR, and the role of IR in the pathogenesis of chronic liver disease. Increased free fatty acid flux from adipose tissue to nonadipose organs, a result of abnormal fat metabolism, leads to hepatic triglyceride accumulation and contributes to impaired glucose metabolism and insulin sensitivity in muscle and in the liver. Several factors secreted or expressed in the adipocyte contribute to the onset of a proinflammatory state, which may be limited to the liver or more extensively expressed throughout the body. IR is the common characteristic of the metabolic syndrome and its related features. It is a systemic disease affecting the nervous system, muscles, pancreas, kidney, heart, and immune system, in addition to the liver. A complex interaction between genes and the environment favors or enhances IR and the phenotypic expression of NAFLD in individual patients. Advanced fibrotic liver disease is associated with multiple features of the metabolic syndrome, and the risk of progressive liver disease should not be underestimated in individuals with metabolic disorders. Finally, the ability of insulin‐sensitizing, pharmacological agents to treat NAFLD by reducing IR in the liver (metformin) and in the periphery (thiazolidinediones) are discussed. (HEPATOLOGY 2005;42:987–1000.)