Adiponectin is a plasma protein expressed exclusively in adipose tissue. Adiponectin levels are linked to insulin sensitivity, but a direct effect of chronically elevated adiponectin on improved insulin sensitivity has not yet been demonstrated. We identified a dominant mutation in the collagenous domain of adiponectin that elevated circulating adiponectin values in mice by 3-fold. Adiponectinemia raised lipid clearance and lipoprotein lipase activity, and suppressed insulin-mediated endogenous glucose production. The induction of adiponectin during puberty and the sexual dimorphism in adult adiponectin values were preserved in these transgenic animals. As a result of elevated adiponectin, serum PRL values and brown adipose mass both increased. The effects on carbohydrate and lipid metabolism were associated with elevated phosphorylation of 5'-AMP-activated protein kinase in liver and elevated expression of peroxisomal proliferator-activated receptor gamma2, caveolin-1, and mitochondrial markers in white adipose tissue. These studies strongly suggest that increasing endogenous adiponectin levels has direct effects on insulin sensitivity and may induce similar physiological responses as prolonged treatment with peroxisomal proliferator-activated receptor gamma agonists.