Excessive supply of fatty acids to the liver might be a contributing factor to hepatic insulin resistance associated with obesity and type 2 diabetes mellitus. The aim of this study was to investigate direct effects of palmitate on insulin signaling in hepatocytes. The ability of metformin to reverse changes induced by palmitate was also studied. Rat hepatocytes in primary culture exhibited a rightward shift of the insulin dose-response curve for PKB phosphorylation during culture with palmitate. The insulin-stimulated phosphorylation of GSK-3beta, a metabolic substrate of PKB, was diminished in palmitate hepatocytes. By contrast, the mTOR protein kinase was overstimulated in cells incubated with palmitate. Hepatocytes cultured with palmitate displayed hyperphosphorylation of IRS-1 at Ser residues 632/635, known to be phosphorylated by mTOR. Metformin treatment of the hepatocytes resulted in activation of the AMP-activated kinase, attenuation of the mTOR/S6K1 pathway, reduction of IRS-1 phosphorylation, and a leftward shift in the insulin dose-response curve for PKB activation. These data suggest a link between an oversupply of fatty acid to hepatocytes, a disproportionate stimulation of mTOR/S6K1, and resistance to insulin.