Non-esterified fatty acids (NEFAs) have been implicated in the pathogenesis of skeletal muscle insulin resistance that may develop, in part, as a consequence of a direct inhibitory effect on early insulin signalling events. Here we report work investigating the mechanism by which palmitate (a saturated free fatty acid) inhibits insulin action in rat L6 myotubes. Palmitate suppressed the insulin-induced plasma membrane recruitment and phosphorylation of protein kinase B (PKB) and this was associated with a loss in insulin-stimulated glucose transport. The inhibition in PKB was not due to a loss in insulin receptor substrate (IRS)1 tyrosine phosphorylation, IRS-1/p85 (phosphoinositide 3-kinase) association or suppression in phosphatidyl 3,4,5 triphosphate synthesis, but was attributable to an elevated intracellular synthesis of ceramide (6-fold) from palmitate and a concomitant activation of protein kinase PKCzeta (5-fold). Inhibitors of serine palmitoyl transferase suppressed the intracellular synthesis of ceramide from palmitate, prevented PKCzeta activation, and antagonized the inhibition in PKB recruitment/phosphorylation and the loss in insulin-stimulated glucose transport elicited by the NEFA. Inhibiting the palmitate-induced activation of PKCzeta with Ro 31.8220, also prevented the loss in the insulin-dependent phosphorylation of PKB caused by palmitate. These findings indicate that intracellular ceramide synthesis and PKCzeta activation are important aspects of the mechanism by which palmitate desensitizes L6 muscle cells to insulin.