Elevated levels of tumor necrosis factor (TNFalpha) are implicated in the development of insulin resistance, but the mechanisms mediating these chronic effects are not completely understood. We demonstrate that TNFalpha signaling through TNF receptor (TNFR) 1 suppresses AMPK activity via transcriptional upregulation of protein phosphatase 2C (PP2C). This in turn reduces ACC phosphorylation, suppressing fatty-acid oxidation, increasing intramuscular diacylglycerol accumulation, and causing insulin resistance in skeletal muscle, effects observed both in vitro and in vivo. Importantly even at pathologically elevated levels of TNFalpha observed in obesity, the suppressive effects of TNFalpha on AMPK signaling are reversed in mice null for both TNFR1 and 2 or following treatment with a TNFalpha neutralizing antibody. Our data demonstrate that AMPK is an important TNFalpha signaling target and is a contributing factor to the suppression of fatty-acid oxidation and the development of lipid-induced insulin resistance in obesity.