The ability of insulin to suppress gluconeogenesis in type II diabetes mellitus is impaired; however, the cellular mechanisms for this insulin resistance remain poorly understood. To address this question, we generated transgenic (TG) mice overexpressing the phosphoenolpyruvate carboxykinase (PEPCK) gene under control of its own promoter. TG mice had increased basal hepatic glucose production (HGP), but normal levels of plasma free fatty acids (FFAs) and whole-body glucose disposal during a hyperinsulinemic-euglycemic clamp compared with wild-type controls. The steady-state levels of PEPCK and glucose-6-phosphatase mRNAs were elevated in livers of TG mice and were resistant to down-regulation by insulin. Conversely, GLUT2 and glucokinase mRNA levels were appropriately regulated by insulin, suggesting that insulin resistance is selective to gluconeogenic gene expression. Insulin-stimulated phosphorylation of the insulin receptor, insulin receptor substrate (IRS)-1, and associated phosphatidylinositol 3-kinase were normal in TG mice, whereas IRS-2 protein and phosphorylation were down-regulated compared with control mice. These results establish that a modest (2-fold) increase in PEPCK gene expression in vivo is sufficient to increase HGP without affecting FFA concentrations. Furthermore, these results demonstrate that PEPCK overexpression results in a metabolic pattern that increases glucose-6-phosphatase mRNA and results in a selective decrease in IRS-2 protein, decreased phosphatidylinositol 3-kinase activity, and reduced ability of insulin to suppress gluconeogenic gene expression. However, acute suppression of HGP and glycolytic gene expression remained intact, suggesting that FFA and/or IRS-1 signaling, in addition to reduced IRS-2, plays an important role in downstream insulin signal transduction pathways involved in control of gluconeogenesis and progression to type II diabetes mellitus.