Intracellular triglyceride (TG) is an important energy source for skeletal muscle. However, recent evidence suggests that if muscle contains abnormally high TG stores its sensitivity to insulin may be reduced, and this could predispose to type II diabetes. To test this hypothesis, we measured muscle lipid content in 27 women aged 47 to 55 years (mean, 52) and related it to their glucose tolerance, insulin resistance, and muscle insulin sensitivity as measured by insulin activation of glycogen synthase, an insulin-regulated enzyme that is rate-limiting for insulin action in muscle. Both muscle TG content and intracellular lipid determined by Oil red O staining of muscle fibers were negatively associated with glycogen synthase activation (r = .43, P = .03 and r = -.47, P = .02, respectively). In addition, intracellular lipid correlated with features of the insulin resistance syndrome, including an increased waist to hip ratio (r = .47, P = .01) and fasting nonesterified fatty acids ([NEFA] r = .44, P = .04). These data demonstrate that increased muscle TG stores are associated with decreased insulin-stimulated glycogen synthase activity. Intracellular fat may underlie a major part of the insulin resistance in normal subjects, as well as type II diabetics.