Farnesoid X receptor (FXR) plays an important role in maintaining bile acid and cholesterol homeostasis. Here we demonstrate that FXR also regulates glucose metabolism. Activation of FXR by the synthetic agonist GW4064 or hepatic overexpression of constitutively active FXR by adenovirus-mediated gene transfer significantly lowered blood glucose levels in both diabetic db/db and wild-type mice. Consistent with these data, FXR null mice exhibited glucose intolerance and insulin insensitivity. We further demonstrate that activation of FXR in db/db mice repressed hepatic gluconeogenic genes and increased hepatic glycogen synthesis and glycogen content by a mechanism that involves enhanced insulin sensitivity. In view of its central roles in coordinating regulation of both glucose and lipid metabolism, we propose that FXR agonists are promising therapeutic agents for treatment of diabetes mellitus.