The protein-tyrosine phosphatase Shp1 negatively regulates insulin action on glucose homeostasis in liver and muscle, but its potential role in obesity-linked insulin resistance has not been examined. To investigate the role of Shp1 in hepatic insulin resistance, we generated hepatocyte-specific Shp1 knockout mice (Ptpn6(H-KO)), which were subjected to extensive metabolic monitoring throughout an 8-week standard chow diet (SD) or high-fat diet (HFD) feeding. We report for the first time that Shp1 expression is upregulated in metabolic tissues of HFD-fed obese mice. When compared with their Shp1-expressing Ptpn6(f/f) littermates, Ptpn6(H-KO) mice exhibited significantly lowered fasting glycemia and heightened hepatic insulin sensitivity. After HFD feeding, Ptpn6(H-KO) mice developed comparable levels of obesity as Ptpn6(f/f) mice, but they were remarkably protected from liver insulin resistance, as revealed by euglycemic clamps and hepatic insulin signaling determinations. Although Ptpn6(H-KO) mice still acquired diet-induced peripheral insulin resistance, they were less hyperinsulinemic during a glucose tolerance test because of reduced insulin secretion. Ptpn6(H-KO) mice also exhibited increased insulin clearance in line with enhanced CC1 tyrosine phosphorylation in liver. These results show that hepatocyte Shp1 plays a critical role in the development of hepatic insulin resistance and represents a novel therapeutic target for obesity-linked diabetes.