The current study was designed to test the hypothesis that inducible nitric oxide synthase (iNOS)-mediated lipid free radical overproduction exists in an insulin-resistant rat model and that reducing the accumulation of toxic metabolites is associated with improved insulin signaling and metabolic response. Lipid radical formation was detected by electron paramagnetic resonance spectroscopy with in vivo spin trapping in an obese rat model, with or without thiazolidinedione treatment. Lipid radical formation was accompanied by accumulation of toxic end products in the liver, such as 4-hydroxynonenal and nitrotyrosine, and was inhibited by the administration of the selective iNOS inhibitor 1400 W. The model showed impaired phosphorylation of the insulin signaling pathway. Ten-day rosiglitazone injection not only improved the response to an oral glucose tolerance test and corrected insulin signaling but also decreased iNOS levels. Similar to the results with specific iNOS inhibition, thiazolidinedione dramatically decreased lipid radical formation. We demonstrate a novel mechanism where a thiazolidinedione treatment can reduce oxidative stress in this model through reducing iNOS-derived lipid radical formation. Our results suggest that hepatic iNOS expression may underlie the accumulation of lipid end products and that reducing the accumulation of toxic lipid metabolites contributes to a better redox status in insulin-sensitive tissues.