Agonists of peroxisome proliferator-activated receptors (PPARs) have emerged as important pharmacological agents for improving insulin action. A major mechanism of action of PPAR agonists is thought to involve the alteration of the tissue distribution of nonesterified fatty acid (NEFA) uptake and utilization. To test this hypothesis directly, we examined the effect of the novel PPARα/γ agonist tesaglitazar on whole-body insulin sensitivity and NEFA clearance into epididymal white adipose tissue (WAT), red gastrocnemius muscle, and liver in rats with dietary-induced insulin resistance. Wistar rats were fed a high-fat diet (59% of calories as fat) for 3 wk with or without treatment with tesaglitazar (1 μmol·kg−1·d−1, 7 d). NEFA clearance was measured using the partially metabolizable NEFA tracer, 3H-R-bromopalmitate, administered under conditions of basal or elevated NEFA availability. Tesaglitazar improved the insulin sensitivity of high-fat-fed rats, indicated by an increase in the glucose infusion rate during hyperinsulinemic-euglycemic clamp (P < 0.01). This improvement in insulin action was associated with decreased diglyceride (P < 0.05) and long chain acyl coenzyme A (P < 0.05) in skeletal muscle. NEFA clearance into WAT of high-fat-fed rats was increased 52% by tesaglitazar under basal conditions (P < 0.001). In addition the PPARα/γ agonist moderately increased hepatic and muscle NEFA utilization and reduced hepatic triglyceride accumulation (P < 0.05). This study shows that tesaglitazar is an effective insulin-sensitizing agent in a mild dietary model of insulin resistance. Furthermore, we provide the first direct in vivo evidence that an agonist of both PPARα and PPARγ increases the ability of WAT, liver, and skeletal muscle to use fatty acids in association with its beneficial effects on insulin action in this model.