It has recently been shown that the fat-derived hormone adiponectin has the ability to decrease hyperglycemia and to reverse insulin resistance. However, bacterially produced full-length adiponectin is functionally inactive. Here, we show that endogenous adiponectin secreted by adipocytes is post-translationally modified into eight different isoforms, as shown by two-dimensional gel electrophoresis. Carbohydrate detection revealed that six of the adiponectin isoforms are glycosylated. The glycosylation sites were mapped to several lysines (residues 68, 71, 80, and 104) located in the collagenous domain of adiponectin, each having the surrounding motif of GXKGE(D). These four lysines were found to be hydroxylated and subsequently glycosylated. The glycosides attached to each of these four hydroxylated lysines are possibly glucosylgalactosyl groups. Functional analysis revealed that full-length adiponectin produced by mammalian cells is much more potent than bacterially generated adiponectin in enhancing the ability of subphysiological concentrations of insulin to inhibit gluconeogenesis in primary rat hepatocytes, whereas this insulin-sensitizing ability was significantly attenuated when the four glycosylated lysines were substituted with arginines. These results indicate that full-length adiponectin produced by mammalian cells is functionally active as an insulin sensitizer and that hydroxylation and glycosylation of the four lysines in the collagenous domain might contribute to this activity.