Visceral adiposity in obesity causes excessive free fatty acid (FFA) flux into the liver via the portal vein and may cause fatty liver disease and hepatic insulin resistance. However, because animal models of insulin resistance induced by lipid infusion or a high fat diet are complex and may be accompanied by alterations not restricted to the liver, it is difficult to determine the contribution of FFAs to hepatic insulin resistance. Therefore, we treated H4IIEC3 cells, a rat hepatocyte cell line, with a monounsaturated fatty acid (oleate) and a saturated fatty acid (palmitate) to investigate the direct and initial effects of FFAs on hepatocytes. We show that palmitate, but not oleate, inhibited insulin-stimulated tyrosine phosphorylation of insulin receptor substrate 2 and serine phosphorylation of Akt, through c-Jun NH(2)-terminal kinase (JNK) activation. Among the well established stimuli for JNK activation, reactive oxygen species (ROS) played a causal role in palmitate-induced JNK activation. In addition, etomoxir, an inhibitor of carnitine palmitoyltransferase-1, which is the rate-limiting enzyme in mitochondrial fatty acid beta-oxidation, as well as inhibitors of the mitochondrial respiratory chain complex (thenoyltrifluoroacetone and carbonyl cyanide m-chlorophenylhydrazone) decreased palmitate-induced ROS production. Together, our findings in hepatocytes indicate that palmitate inhibited insulin signal transduction through JNK activation and that accelerated beta-oxidation of palmitate caused excess electron flux in the mitochondrial respiratory chain, resulting in increased ROS generation. Thus, mitochondria-derived ROS induced by palmitate may be major contributors to JNK activation and cellular insulin resistance.