Aims/hypothesis. Increased cellular production of ceramide has been implicated in the pathogenesis of insulin resistance and in the impaired utilisation of glucose. In this study we have used L6 muscle cells to investigate the mechanism by which the short-chain ceramide analogue, C₂-ceramide, promotes a loss in insulin sensitivity leading to a reduction in insulin stimulated glucose transport and glycogen synthesis. Method. L6 muscle cells were pre-incubated with C₂-ceramide and the effects of insulin on glucose transport, glycogen synthesis and the activities of key molecules involved in proximal insulin signalling determined. Results. Incubation of L6 muscle cells with ceramide (100 μmol/l) for 2 h led to a complete loss of insulin-stimulated glucose transport and glycogen synthesis. This inhibition was not due to impaired insulin receptor substrate 1 phosphorylation or a loss in phosphoinositide 3-kinase activation but was caused by a failure to activate protein kinase B. This defect could not be attributed to inhibition of 3-phosphoinositide-dependent kinase-1, or to impaired binding of phosphatidylinositol 3,4,5 triphosphate (PtdIns(3,4,5)P₃) to the PH domain of protein kinase B, but results from the inability to recruit protein kinase B to the plasma membrane. Expression of a membrane-targetted protein kinase B led to its constitutive activation and an increase in glucose transport that was not inhibited by ceramide. Conclusions/interpretation. These findings suggest that a defect in protein kinase B recruitment underpins the ceramide-induced loss in insulin sensitivity of key cell responses such as glucose transport and glycogen synthesis in L6 cells. They also suggest that a stimulated rise in PtdIns(3,4,5)P₃ is necessary but not sufficient for protein kinase B activation in this system. [Diabetologia (2001) 44: 173–183]