The type of free fatty acids (FFAs), saturated or unsaturated, is critical in the development of insulin resistance (IR), since the degree of saturation correlates with IR. We compared the effects of the saturated FFA palmitate, the unsaturated FFA oleate, and a mixture of each on the production of mitochondrial reactive oxygen species (mtROS), mitochondrial DNA (mtDNA) damage, mitochondrial function, apoptosis, and insulin-signaling pathway in skeletal muscle cells. Only palmitate caused a significant increase of mtROS production, which correlated with concomitant mtDNA damage, mitochondrial dysfunction, induction of JNK, apoptosis, and inhibition of insulin signaling. Blocking de novo synthesis of ceramide abolished the effects of palmitate on mtROS production, viability, and insulin signaling. Oleate alone did not cause mtROS generation and mtDNA damage, and its addition to palmitate prevented palmitate-induced mtDNA damage, increased total ATP levels and cell viability, and prevented palmitate-induced apoptosis and inhibition of insulin-stimulated Akt (Ser(473)) phosphorylation. The peroxisome proliferator activator receptor-γ coactivator 1α (PGC-1α) protein level and promoter activity were decreased at concentrations of palmitate ≥0.5 mM, whereas addition of oleate increased both PGC-1α level and promoter activity. Expression of the mitochondrial transcription factor (TFAM) was significantly diminished after palmitate but not oleate treatment. Addition of the ROS scavenger, N-acetylcystein (NAC), to palmitate restored both the expression and promoter activity of PGC-1α as well as TFAM expression. We propose that 1) mtROS generation is the initial event in the induction of mitochondrial dysfunction and consequent apoptosis and the inhibition of insulin signaling and that 2) oleate ameliorates palmitate-induced mitochondrial dysfunction and thus may contribute to the prevention of palmitate-induced IR.