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The prevalence of obesity and of type 2 diabetes mellitus are increasing at an accelerating rate in the USA and other industrialized countries. Free fatty acids (FFAs) have emerged as a major link between obesity and insulin resistance/type 2 diabetes mellitus. A review of the interaction between FFAs and glucose metabolism is therefore timely and relevant.Acute and chronic elevations in plasma FFAs produce peripheral (muscle) and hepatic insulin resistance. In skeletal muscle, this process is associated with accumulation of intramyocellular triglyceride and diacylglycerol, and with activation of protein kinase C (the β and δ isoforms). It is hypothesized that FFAs interfere with insulin signaling via protein kinase C-induced serine phosphorylation of insulin receptor substrate-1. In the liver, FFAs cause insulin resistance by interfering with insulin suppression of glycogenolysis. In the β cells, FFAs potentiate glucose-stimulated insulin secretion. It is postulated that this prevents the development type 2 diabetes mellitus in the majority (approximately 80%) of obese insulin-resistant people.Elevated plasma FFA levels have been shown to account for up to 50% of insulin resistance in obese patients with type 2 diabetes mellitus. Lowering of FFAs in these patients or interfering with steps in the pathway through which FFAs cause insulin resistance could be a new and promising approach to treat type 2 diabetes mellitus.