Biosynthesis of hepatic choline via phosphatidylethanolamine N-methyltransferase (PEMT) plays an important role in the development of type 2 diabetes and obesity. We investigated the mechanism(s) by which choline modulates insulin sensitivity. PEMT wild-type (Pemt(+/+)) and knock-out (Pemt(-/-)) mice received either a high fat diet (HF; 60% kcal of fat) or a high fat, high choline diet (HFHC; 4 g of choline/kg of HF diet) for 1 week. Hepatic insulin signaling and glucose and lipid homeostasis were investigated. Glucose and insulin intolerance occurred in Pemt(-/-) mice fed the HFHC diet, but not in their Pemt(-/-) littermates fed the HF diet. Plasma glucagon was elevated in Pemt(-/-) mice fed the HFHC diet compared with Pemt(-/-) mice fed the HF diet, concomitant with increased hepatic expression of glucagon receptor, phosphorylated AMP-activated protein kinase (AMPK), and phosphorylated insulin receptor substrate 1 at serine 307 (IRS1-s307). Gluconeogenesis and mitochondrial oxidative stress were markedly enhanced, whereas glucose oxidation and triacylglycerol biosynthesis were diminished in Pemt(-/-) mice fed the HFHC diet. A glucagon receptor antagonist (2-aminobenzimidazole) attenuated choline-induced hyperglycemia and insulin intolerance and blunted up-regulation of phosphorylated AMPK and IRS1-s307. Choline induces glucose and insulin intolerance in Pemt(-/-) mice through modulating plasma glucagon and its action in liver.