The bile acid receptor farnesoid X receptor (FXR; NR1H4) is a central regulator of bile acid and lipid metabolism. We show here that FXR plays a key regulatory role in glucose homeostasis. FXR-null mice developed severe fatty liver and elevated circulating FFAs, which was associated with elevated serum glucose and impaired glucose and insulin tolerance. Their insulin resistance was confirmed by the hyperinsulinemic euglycemic clamp, which showed attenuated inhibition of hepatic glucose production by insulin and reduced peripheral glucose disposal. In FXR-/- skeletal muscle and liver, multiple steps in the insulin signaling pathway were markedly blunted. In skeletal muscle, which does not express FXR, triglyceride and FFA levels were increased, and we propose that their inhibitory effects account for insulin resistance in that tissue. In contrast to the results in FXR-/- mice, bile acid activation of FXR in WT mice repressed expression of gluconeogenic genes and decreased serum glucose. The absence of this repression in both FXR-/- and small heterodimer partner-null (SHP-/-) mice demonstrated that the previously described FXR-SHP nuclear receptor cascade also targets glucose metabolism. Taken together, our results identify a link between lipid and glucose metabolism mediated by the FXR-SHP cascade.