Although it is well-established that reductions in the ratio of insulin to glucagon in the portal vein have a major role in the dysregulation of hepatic glucose metabolism in type-2 diabetes1-3, the mechanisms by which glucagon affects hepatic glucose production and mitochondrial oxidation are poorly understood. Here we show that glucagon stimulates hepatic gluconeogenesis by increasing the activity of hepatic adipose triglyceride lipase, intrahepatic lipolysis, hepatic acetyl-CoA content and pyruvate carboxylase flux, while also increasing mitochondrial fat oxidation-all of which are mediated by stimulation of the inositol triphosphate receptor 1 (INSP3R1). In rats and mice, chronic physiological increases in plasma glucagon concentrations increased mitochondrial oxidation of fat in the liver and reversed diet-induced hepatic steatosis and insulin resistance. However, these effects of chronic glucagon treatment-reversing hepatic steatosis and glucose intolerance-were abrogated in Insp3r1 (also known as Itpr1)-knockout mice. These results provide insights into glucagon biology and suggest that INSP3R1 may represent a target for therapies that aim to reverse nonalcoholic fatty liver disease and type-2 diabetes.