A ctivation of inflammatory pathways may contribute to the beginning and the progression of both atherosclerosis and type 2 diabetes. Here we report a novel interaction between insulin action and control of inflammation, resulting in glucose intolerance and vascular inflammation and amenable to therapeutic modulation. In insulin receptor heterozygous (Insr^+/–) mice, we identified the deficiency of tissue inhibitor of metalloproteinase 3 (Timp3, an inhibitor of both TNF-α–converting enzyme [TACE] and MMPs) as a common bond between glucose intolerance and vascular inflammation. Among Insr^+/– mice, those that develop diabetes have reduced Timp3 and increased TACE activity. Unchecked TACE activity causes an increase in levels of soluble TNF-α, which subsequently promotes diabetes and vascular inflammation. Double heterozygous Insr^+/–Timp3^+/– mice develop mild hyperglycemia and hyperinsulinemia at 3 months and overt glucose intolerance and hyperinsulinemia at 6 months. A therapeutic role for Timp3/TACE modulation is supported by the observation that pharmacological inhibition of TACE led to marked reduction of hyperglycemia and vascular inflammation in Insr^+/– diabetic mice, as well as by the observation of increased insulin sensitivity in Tace^+/– mice compared with WT mice. Our results suggest that an interplay between reduced insulin action and unchecked TACE activity promotes diabetes and vascular inflammation.