Chronic reactive oxygen species (ROS) production by mitochondria may contribute to the development of insulin resistance, a primary feature of type 2 diabetes. In recent years it has become apparent that ROS generation in response to physiological stimuli such as insulin may also facilitate signaling by reversibly oxidizing and inhibiting protein tyrosine phosphatases (PTPs). Here we report that mice lacking one of the key enzymes involved in the elimination of physiological ROS, glutathione peroxidase 1 (Gpx1), were protected from high-fat-diet-induced insulin resistance. The increased insulin sensitivity in Gpx1(-/-) mice was attributed to insulin-induced phosphatidylinositol-3-kinase/Akt signaling and glucose uptake in muscle and could be reversed by the antioxidant N-acetylcysteine. Increased insulin signaling correlated with enhanced oxidation of the PTP family member PTEN, which terminates signals generated by phosphatidylinositol-3-kinase. These studies provide causal evidence for the enhancement of insulin signaling by ROS in vivo.