Type 2 diabetes mellitus, a disease with significant effects on the health and economy of Western societies, involves disturbances in both lipid and carbohydrate metabolism. In the insulin-resistant or diabetic state, the liver is unresponsive to the actions of insulin with regard to the suppression of glucose output but continues to produce large amounts of lipid, the latter mimicking the fed, insulin-replete condition. The disordered distribution of lipids contributes to the cardiovascular disease that is the greatest cause of mortality of type 2 diabetes mellitus. Yet the precise signal transduction pathways by which insulin regulates hepatic lipid synthesis and degradation remain largely unknown. Here we describe a mechanism by which insulin, through the intermediary protein kinase Akt2/protein kinase B (PKB)-beta, elicits the phosphorylation and inhibition of the transcriptional coactivator peroxisome proliferator-activated receptor-coactivator 1alpha (PGC-1alpha), a global regulator of hepatic metabolism during fasting. Phosphorylation prevents the recruitment of PGC-1alpha to the cognate promoters, impairing its ability to promote gluconeogenesis and fatty acid oxidation. These results define a mechanism by which insulin controls lipid catabolism in the liver and suggest a novel site for therapy in type 2 diabetes mellitus.