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HIV-lipodystrophy (HIV-LD) is characterized by the loss of body fat from the limbs and face, an increase in truncal fat, insulin resistance, and hyperlipidemia, factors placing affected patients at increased risk for vascular disease. This study evaluated insulin sensitivity and inflammatory status associated with HIV-LD and provides suggestions about its etiology. Insulin sensitivity and immune activation markers were assessed in 12 control subjects and 2 HIV-positive groups, 14 without and 15 with LD syndrome. Peripheral insulin sensitivity (mostly skeletal muscle) was determined with the hyperinsulinemic-euglycemic clamp. Circulating insulin-like growth factor (IGF) binding protein-1 (IGFBP-1) and free fatty acid (FFA) levels, and their response to insulin infusion were indicative of insulin responsiveness of liver and adipose tissue, respectively. Serum levels of soluble type 2 tumor necrosis factor-α (TNF-α) receptor (sTNFR2) were used as an indicator of immune activation. HIV-LD study subjects had significantly reduced (twofold) peripheral insulin sensitivity, but normal levels of FFA and reduced levels of IGFBP-1, relative to the nonlipodystrophy groups, indicating that the loss of insulin sensitivity was more pronounced in skeletal muscle than in liver or fat. The significant loss of peripheral fat in the HIV-LD group (34%; p < .05) closely correlated with the reduced peripheral insulin sensitivity (p = .0001). Levels of sTNFR2 were elevated in all HIV-infected study subjects, but they were significantly higher in those with lipodystrophy than without, and sTNFR2 levels strongly correlated with the reduction in insulin sensitivity (p = .0001). Loss of peripheral fat, normal levels of FFA, and reduced levels of IGFBP-1 indicate that insulin resistance in HIV-LD is distinct from type 2 diabetes and obesity. The relationship between the degree of insulin resistance and sTNFR2 levels suggests an inflammatory stimulus is contributing to the development of HIV-associated lipodystrophy.