Fibroblast growth factor 21 (FGF21) is a potent regulator of glucose and lipid metabolism and is currently being pursued as a therapeutic agent for insulin resistance and type 2 diabetes. However, the cellular mechanisms by which FGF21 modifies insulin action in vivo are unclear. To address this question, we assessed insulin action in regular chow– and high-fat diet (HFD)–fed wild-type mice chronically infused with FGF21 or vehicle. Here, we show that FGF21 administration results in improvements in both hepatic and peripheral insulin sensitivity in both regular chow– and HFD-fed mice. This improvement in insulin responsiveness in FGF21-treated HFD-fed mice was associated with decreased hepatocellular and myocellular diacylglycerol content and reduced protein kinase Cε activation in liver and protein kinase Cθ in skeletal muscle. In contrast, there were no effects of FGF21 on liver or muscle ceramide content. These effects may be attributed, in part, to increased energy expenditure in the liver and white adipose tissue. Taken together, these data provide a mechanism by which FGF21 protects mice from lipid-induced liver and muscle insulin resistance and support its development as a novel therapy for the treatment of nonalcoholic fatty liver disease, insulin resistance, and type 2 diabetes.