Tumor necrosis factor-alpha (TNF-alpha) has been shown to induce insulin resistance in cultured cells as well as in animal models. The aim of this study was to map the in vivo mechanism whereby TNF-alpha contributes to the pathogenesis of impaired insulin signaling, using obese and lean Zucker rats in which TNF-alpha activity was inhibited through adenovirus-mediated gene transfer. We employed a replication-incompetent adenovirus-5 (Ad5) vector to endogenously express a TNF inhibitor (TNFi) gene, which encodes a chimeric protein consisting of the extracellular domain of the human 55-kDa TNF receptor joined to a mouse IgG heavy chain. Control animals consisted of rats infected with the same titer of adenovirus carrying the lac-z complementary DNA, encoding for beta-galactosidase. There was a significant reduction in plasma insulin and free fatty acid levels in TNFi obese rats 2 days following Ad5 administration. The peripheral insulin sensitivity index was 50% greater, whereas hepatic glucose output was completely suppressed during hyperinsulinemic glucose clamps in TNFi obese animals, with no differences observed between the two lean groups. The improvement in peripheral and hepatic sensitivity to insulin seen in the obese animals was independent of insulin receptor (IR) number and insulin binding affinity for IR. However, TNF-alpha neutralization led to a 2.5-fold increase in tyrosine phosphorylation of IR in skeletal muscle, whereas this was unchanged in liver. There was also a 4-fold increase in particulate protein tyrosine phosphatase activity of skeletal muscle in TNFi obese animals vs. beta-galactosidase controls, whereas protein tyrosine phosphatase activity in liver was unchanged. These results suggest that TNF-alpha is a mediator of insulin resistance in obesity and may modulate IR signaling in skeletal muscle and liver through different pathways. TNF-alpha may affect insulin action in the liver either at sites distal to the IR or indirectly, possibly because of increased provision of gluconeogenic substrates or altered counterregulation. In addition, the Ad5-mediated gene delivery system employed here provides an in vivo model that is efficient and economical for exploring mechanisms involved in TNF-alpha-induced insulin resistance in various genetic models of obesity-linked diabetes.