Visceral adipocytes and associated macrophages produce and release excessive amounts of biologically active inflammatory cytokines via the portal and systemic vascular system, which induce insulin resistance in insulin target tissues such as fat, liver, and muscle. Free fatty acids (FFAs) absorbed via the portal system or released from adipocytes also induce insulin resistance. In this report, we show that phenylmethimazole (C10) blocks basal IL6 and leptin production as well as basal Socs-3 expression in fully differentiated 3T3L1 cells (3T3L1 adipocytes) without affecting insulin-stimulated AKT signaling. In addition, C10 inhibits palmitate-induced IL6 and iNos up-regulation in both 3T3L1 adipocytes and RAW 264.7 macrophages, LPS-induced NF-κB and IFN-β activation in 3T3L1 cells, and LPS-induced iNos, Ifn-β, Il1β, Cxcl10, and Il6 expression in RAW 264.7 macrophages. C10 also blocks palmitate-induced Socs-3 up-regulation and insulin receptor substrate-1 (IRS-1) serine 307 phosphorylation in 3T3L1 adipocytes. Additionally, we show for the first time that although palmitate increases IRS-1 serine 307 phosphorylation in 3T3L1 adipocytes, AKT serine 473 phosphorylation is enhanced, not reduced, by palmitate. These results suggest that through inhibition of FFA-mediated signaling in adipocytes and associated macrophages, as well as possibly other insulin target cells/tissues (i.e. non-immune cells), C10 might be efficacious to prevent or reverse cytokine-induced insulin resistance seen in obesity-related insulin resistance and type 2 diabetes mellitus.