Nonalcoholic fatty liver disease is strongly associated with hepatic insulin resistance and type 2 diabetes mellitus, but the molecular signals linking hepatic fat accumulation to hepatic insulin resistance are unknown. Three days of high-fat feeding in rats results specifically in hepatic steatosis and hepatic insulin resistance. In this setting, PKCepsilon, but not other isoforms of PKC, is activated. To determine whether PKCepsilon plays a causal role in the pathogenesis of hepatic insulin resistance, we treated rats with an antisense oligonucleotide against PKCepsilon and subjected them to 3 days of high-fat feeding. Knocking down PKCepsilon expression protects rats from fat-induced hepatic insulin resistance and reverses fat-induced defects in hepatic insulin signaling. Furthermore, we show that PKCepsilon associates with the insulin receptor in vivo and impairs insulin receptor kinase activity both in vivo and in vitro. These data support the hypothesis that PKCepsilon plays a critical role in mediating fat-induced hepatic insulin resistance and represents a novel therapeutic target for type 2 diabetes.