Clinical, epidemiological, and biochemical studies have highlighted the role of obesity-induced insulin resistance in various metabolic diseases. However, the underlying molecular mechanisms remain to be established. In the present study, we show that palmitate-induced serine phosphorylation of phosphoinositide-dependent protein kinase-1 (PDK1) negatively regulates insulin signaling. PDK1-mediated Akt phosphorylation at Thr308 in the activation loop is reduced in C2C12 myotubes treated with palmitate or overexpressing protein kinase C theta (PKCtheta), a kinase that has been implicated in hyperlipidemia-induced insulin resistance. Palmitate treatment also inhibited platelet-derived growth factor-stimulated Akt phosphorylation, suggesting that the inhibition could occur at a site independent of IRS1/2. The inhibitory effect of palmitate on PDK1 and Akt was diminished in PKCtheta-deficient mouse embryonic fibroblasts (MEFs) by treating C2C12 myotubes with PKCtheta pseudosubstrates. In vivo labeling studies revealed that PDK1 undergoes palmitate-induced phosphorylation at two novel sites, Ser504 and Ser532. Replacing Ser504/532 with alanine disrupted PKCtheta-catalyzed PDK1 phosphorylation in vitro and palmitate-induced PDK1 phosphorylation in cells. PDK1-deficient MEFs transiently expressing PDK1S504A/S532A but not PDK1S504E/S532D showed increased basal and insulin-stimulated Akt phosphorylation at Thr308 when compared with MEFs expressing wild-type PDK1. Taken together, our results identify PDK1 as a novel target in free fatty acid-induced insulin resistance and PKCtheta as the kinase mediating the negative regulation.