Hepatic insulin resistance is the major contributor to fasting hyperglycemia in type 2 diabetes. Here we report that the endosomal adaptor protein APPL1 increases hepatic insulin sensitivity by potentiating insulin-mediated suppression of the gluconeogenic program. Insulin-stimulated activation of Akt and suppression of gluconeogenesis in hepatocytes are enhanced by APPL1 overexpression, but are attenuated by APPL1 knockdown. APPL1 interacts with Akt and blocks the association of Akt with its endogenous inhibitor tribble 3 (TRB3) through direct competition, thereby promoting Akt translocation to the plasma membrane and the endosomes for further activation. In db/db diabetic mice, the blockage of the augmented interaction between Akt and TRB3 by hepatic overexpression of APPL1 is accompanied by a marked attenuation of hyperglycemia and insulin resistance. These results suggest that the potentiating effects of APPL1 on insulin-stimulated suppression of hepatic glucose production are attributed to its ability in counteracting the inhibition of Akt activation by TRB3.