Mitochondrial fatty acid oxidation provides an important energy source for cellular metabolism, and decreased mitochondrial fatty acid oxidation has been implicated in the pathogenesis of type 2 diabetes. Paradoxically, mice with an inherited deficiency of the mitochondrial fatty acid oxidation enzyme, very long-chain acyl-CoA dehydrogenase (VLCAD), were protected from high-fat diet-induced obesity and liver and muscle insulin resistance. This was associated with reduced intracellular diacylglycerol content and decreased activity of liver protein kinase Cɛ and muscle protein kinase Cθ. The increased insulin sensitivity in the VLCAD^−/− mice were protected from diet-induced obesity and insulin resistance due to chronic activation of AMPK and PPARα, resulting in increased fatty acid oxidation and decreased intramyocellular and hepatocellular diacylglycerol content.