Alterations in mitochondrial function have been implicated in the pathogenesis of insulin resistance and type 2 diabetes. However, it is unclear whether the reduced mitochondrial function is a primary or acquired defect in this process. To determine whether primary defects in mitochondrial β-oxidation can cause insulin resistance, we studied mice with a deficiency of long-chain acyl-CoA dehydrogenase (LCAD), a key enzyme in mitochondrial fatty acid oxidation. Here, we show that LCAD knockout mice develop hepatic steatosis, which is associated with hepatic insulin resistance, as reflected by reduced insulin suppression of hepatic glucose production during a hyperinsulinemic-euglycemic clamp. The defects in insulin action were associated with an ≈40% reduction in insulin-stimulated insulin receptor substrate-2-associated phosphatidylinositol 3-kinase activity and an ≈50% decrease in Akt2 activation. These changes were associated with increased PKCε activity and an aberrant 4-fold increase in diacylglycerol content after insulin stimulation. The increase in diacylglycerol concentration was found to be caused by de novo synthesis of diacylglycerol from medium-chain acyl-CoA after insulin stimulation. These data demonstrate that primary defects in mitochondrial fatty acid oxidation capacity can lead to diacylglycerol accumulation, PKCε activation, and hepatic insulin resistance.