Type 2 (non-insulin-dependent) diabetes mellitus is a progressive metabolic disorder arising from genetic and environmental factors that impair beta cell function and insulin action in peripheral tissues. We identified reduced diacylglycerol kinase delta (DGKdelta) expression and DGK activity in skeletal muscle from type 2 diabetic patients. In diabetic animals, reduced DGKdelta protein and DGK kinase activity were restored upon correction of glycemia. DGKdelta haploinsufficiency increased diacylglycerol content, reduced peripheral insulin sensitivity, insulin signaling, and glucose transport, and led to age-dependent obesity. Metabolic flexibility, evident by the transition between lipid and carbohydrate utilization during fasted and fed conditions, was impaired in DGKdelta haploinsufficient mice. We reveal a previously unrecognized role for DGKdelta in contributing to hyperglycemia-induced peripheral insulin resistance and thereby exacerbating the severity of type 2 diabetes. DGKdelta deficiency causes peripheral insulin resistance and metabolic inflexibility. These defects in glucose and energy homeostasis contribute to mild obesity later in life.