To investigate the mechanisms of insulin resistance in obesity and noninsulin-dependent diabetes mellitus (NIDDM), we examined oxidative and nonoxidative pathways of free fatty acid (FFA) and glucose metabolism in 14 lean and 17 obese (with normal oral glucose tolerance) nondiabetic subjects and in 8 lean and 8 obese subjects with NIDDM. FFA and glucose metabolism were measured using the sequential insulin clamp technique in combination with indirect calorimetry and infusion of [3-3H]glucose and [1-14C]palmitate. Obesity was characterized by enlarged fat mass, which correlated positively with the plasma FFA concentration (r = 0.62; P less than 0.01). FFA metabolism was less sensitive to insulin in obese than in lean nondiabetic subjects, but this defect could be overcome by increasing the plasma insulin concentration. NIDDM patients showed normal sensitivity to the inhibitory action of insulin on FFA metabolism; however, maximal suppression by insulin was impaired. The combination of obesity and NIDDM was associated with a further enhancement of reesterification of FFA than observed in either condition alone. In both obesity and NIDDM, the dose-response curve for suppression of hepatic glucose production by insulin was impaired. While obesity was primarily characterized by reduced sensitivity to the stimulatory action of insulin on oxidative and nonoxidative pathways of glucose metabolism, resistance to the effect of insulin on glucose metabolism in NIDDM was characterized by a reduced maximal response. The combination of obesity and NIDDM further impaired the sensitivity of liver glucose output and glucose oxidation to insulin. The hypothesis is advanced that in uncomplicated obesity, increased availability and oxidation of FFA leads, by the FFA/glucose cycle, to the impairment in glucose utilization. In NIDDM, on the other hand, the defect in glucose utilization is primary, and the enhanced rate of FFA oxidation may represent a compensatory phenomenon.