Nonalcoholic fatty liver disease (NAFLD) is a risk factor for type 2 diabetes (T2D), but whether NAFLD plays a causal role in the pathogenesis of T2D is uncertain. One proposed mechanism linking NAFLD to hepatic insulin resistance involves diacylglycerol-mediated (DAG-mediated) activation of protein kinase C-ε (PKCε) and the consequent inhibition of insulin receptor (INSR) kinase activity. However, the molecular mechanism underlying PKCε inhibition of INSR kinase activity is unknown. Here, we used mass spectrometry to identify the phosphorylation site Thr1160 as a PKCε substrate in the functionally critical INSR kinase activation loop. We hypothesized that Thr1160 phosphorylation impairs INSR kinase activity by destabilizing the active configuration of the INSR kinase, and our results confirmed this prediction by demonstrating severely impaired INSR kinase activity in phosphomimetic T1160E mutants. Conversely, the INSR T1160A mutant was not inhibited by PKCε in vitro. Furthermore, mice with a threonine-to-alanine mutation at the homologous residue Thr1150 (InsrT1150A mice) were protected from high fat diet–induced hepatic insulin resistance. InsrT1150A mice also displayed increased insulin signaling, suppression of hepatic glucose production, and increased hepatic glycogen synthesis compared with WT controls during hyperinsulinemic clamp studies. These data reveal a critical pathophysiological role for INSR Thr1160 phosphorylation and provide further mechanistic links between PKCε and INSR in mediating NAFLD-induced hepatic insulin resistance.