Insulin resistance is one of the primary characteristics of type 2 diabetes. Mice overexpressing a dominant-negative IGF-I receptor specifically in muscle (MKR mice) demonstrate severe insulin resistance with high levels of serum and tissue lipids and eventually develop type 2 diabetes at 5–6 wk of age. To determine whether lipotoxicity plays a role in the progression of the disease, we crossed MKR mice with mice overexpressing a fatty acid translocase, CD36, in skeletal muscle. The double-transgenic MKR/CD36 mice showed normalization of the hyperglycemia and the hyperinsulinemia as well as a marked improvement in liver insulin sensitivity. The MKR/CD36 mice also exhibited normal rates of fatty acid oxidation in skeletal muscle when compared with the decreased rate of fatty acid oxidation in MKR. With the reduction in insulin resistance, β-cell function returned to normal. These and other results suggest that the insulin resistance in the MKR mice is associated with increased muscle triglycerides levels and that whole-body insulin resistance can be, at least partially, reversed in association with a reduction in muscle triglycerides levels, although the mechanisms are yet to be determined.