The inability of insulin to stimulate glucose metabolism in skeletal muscle is a classic characteristic of type 2 diabetes, but this insulin resistance entails altered patterns of lipid metabolism as well. An association between intracellular triglyceride and insulin resistance has been well established in both human and animal studies of obesity-related insulin resistance and type 2 diabetes. Skeletal muscle’s ability to select substrate for fuel metabolism, a metabolic flexibility, is also lost in insulin resistance, and defects in fatty acid metabolism during fasting or postabsorptive conditions likely play an important role in lipid oversupply to insulinresistant muscle. These impairments appear to be at least indirectly centered on the ability of mitochondria to oxidize fatty acids, possibly through mediation of lipid metabolite levels such as ceramide or diacylglycerol, which are known to directly attenuate insulin signaling. Moreover, periodic use of muscle triglyceride by exercise may mediate the association between muscle triglyceride and insulin resistance. Thus, it appears that skeletal muscle triglyceride is perhaps a surrogate for other lipid species having a more direct effect on insulin action. Defining mechanisms by which dysregulation of fatty acid metabolism and persistent lipid oversupply alter insulin action may help to target more effective strategies to prevent or treat type 2 diabetes.