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Insulin resistance is a major factor in the pathogenesis of type 2 diabetes and is strongly associated with obesity. Increased concentrations of intracellular fatty acid metabolites have been postulated to interfere with insulin signaling by activation of a serine kinase cascade involving PKCθ in skeletal muscle. Uncoupling protein 3 (UCP3) has been postulated to dissipate the mitochondrial proton gradient and cause metabolic inefficiency. We therefore hypothesized that overexpression of UCP3 in skeletal muscle might protect against fat-induced insulin resistance in muscle by conversion of intramyocellular fat into thermal energy. Wild-type mice fed a high-fat diet were markedly insulin resistant, a result of defects in insulin-stimulated glucose uptake in skeletal muscle and hepatic insulin resistance. Insulin resistance in these tissues was associated with reduced insulin-stimulated insulin receptor substrate 1– (IRS-1–) and IRS-2–associated PI3K activity in muscle and liver, respectively. In contrast, UCP3-overexpressing mice were completely protected against fat-induced defects in insulin signaling and action in these tissues. Furthermore, these changes were associated with a lower membrane-to-cytosolic ratio of diacylglycerol and reduced PKCθ activity in whole-body fat–matched UCP3 transgenic mice. These results suggest that increasing mitochondrial uncoupling in skeletal muscle may be an excellent therapeutic target for type 2 diabetes mellitus.