Suppression of hepatic glucose output (HGO) has been shown to be primarily mediated by peripheral rather than portal insulin concentrations; however, the mechanism by which peripheral insulin suppresses HGO has not yet been determined. Previous findings by our group indicated a strong correlation between free fatty acids (FFA) and HGO, suggesting that insulin suppression of HGO is mediated via suppression of lipolysis. To directly test the hypothesis that insulin suppression of HGO is causally linked to the suppression of adipose tissue lipolysis, we performed euglycemic-hyperinsulinemic glucose clamps in conscious dogs (n = 8) in which FFA were either allowed to fall or were prevented from falling with Liposyn plus heparin infusion (LI; 0.5 ml/min 20% Liposyn plus 25 U/min heparin with a 250 U prime). Endogenous insulin and glucagon were suppressed with somatostatin (1 microgram/min/kg), and insulin was infused at a rate of either 0.125 or 0.5 mU/min/kg. Two additional experiments were performed at the 0.5 mU/min/kg insulin dose: a double Liposyn infusion (2 x LI; 1.0 ml/min 20% Liposyn, heparin as above), and a glycerol infusion (19 mg/min). With the 0.125 mU/min/kg insulin infusion, FFA fell 40% and HGO fell 33%; preventing the fall in FFA with LI entirely prevented this decline in HGO. With 0.5 mU/min/kg insulin infusion, FFA levels fell 64% while HGO declined 62%. Preventing the fall in FFA at this higher insulin dose largely prevented the fall in HGO; however, steady state HGO still declined by 18%. Doubling the LI infusion did not further affect HGO, suggesting that the effect of FFA on HGO is saturable. Elevating plasma glycerol levels did not alter insulin's ability to suppress HGO. These data directly support the concept that insulin suppression of HGO is not direct, but rather is mediated via insulin suppression of adipose tissue lipolysis. Thus, resistance to insulin control of hepatic glucose production in obesity and/or non-insulin-dependent diabetes mellitus may reflect resistance of the adipocyte to insulin suppression of lipolysis.