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A critical defect in type 2 diabetes is impaired insulin-stimulated glucose transport and metabolism in muscle and adipocytes. To understand the metabolic adaptations this elicits, we generated mice with targeted disruption of the GLUT4 glucose transporter in both adipocytes and muscle (AMG4KO). In contrast to total body GLUT4-null mice, AMG4KO mice exhibit normal growth, development, adipose mass, and longevity. They develop fasting hyperglycemia and glucose intolerance and are at risk for greater insulin resistance than mice lacking GLUT4 in only one tissue. Hyperinsulinemic-euglycemic clamp studies showed a 75% decrease in glucose infusion rate and markedly reduced 2-deoxyglucose uptake into skeletal muscle (85–90%) and white adipose tissue (65%). However, AMG4KO mice adapt by preferentially utilizing lipid fuels, as evidenced by a lower respiratory quotient and increased clearance of lipids from serum after oral lipid gavage. While insulin action on hepatic glucose production and gluconeogenic enzymes is impaired, hepatic glucokinase expression, incorporation of ¹⁴C-glucose into lipids, and hepatic VLDL-triglyceride release are increased. The lipogenic activity may be mediated by increased hepatic expression of SREBP-1c and acetyl-CoA carboxylase. Thus, inter-tissue communication results in adaptations to impaired glucose transport in muscle and adipocytes that involve increased hepatic glucose uptake and lipid synthesis, while muscle adapts by preferentially utilizing lipid fuels. Genetic determinants limiting this “metabolic flexibility” may contribute to insulin resistance and type 2 diabetes in humans.