Aims/hypothesis. Insulin resistance of skeletal muscle has been associated with increased lipid availability. This study aimed to estimate volume fractions of intramyocellular triglyceride droplets and glycogen granules in skeletal muscle using electron microscopy and furthermore, relate these findings to insulin sensitivity and the level of circulating lipids. Methods. We compared 11 obese patients with Type II (non-insulin-dependent) diabetes mellitus and 11 obese normoglycaemic subjects matched for age and sex. Glucose metabolism was determined using the euglycaemic hyperinsulinaemic clamp technique (40 mU · m^–2· min^–1) coupled with indirect calorimetry and tritiated glucose. On the second day, using an automatic procedure, a fasting muscle biopsy was carried out and processed for electron microscopy. Volume fractions of intramyocellular structures were estimated by pointcounting on photographic pictures in a blinded manner. Results. Insulin-stimulated total glucose disposal rate was lower in the Type II diabetic subjects compared with the obese normoglycaemic subjects (4.96 ± 049 vs 10.35 ± 0.89 mg · min^–1· kg ffm^–1, p < 0.001) as was glucose storage (2.03 ± 0.50 vs 6.59 ± 0.83, p < 0.001). The electron microscopy study revealed that the diabetic subjects had higher intramyocellular amounts of triglyceride (1.43 ± 0.21 vs 0.39 ± 0.07 %, p < 0.001) and lower amounts of glycogen (3.53 ± 0.33 vs 6.94 ± 0.54 %, p < 0.001). Mitochondrial volume was identical indicating equal aerobic capacity. The fractional intramyocellular lipid volume was found to be positively associated with fasting NEFA (r = 0.63, p = < 0.05 and r = 0.79, p = < 0.05) and triglyceride (r = 0.74, p = 0.01 and r = 0.62, p < 0.05) in the obese diabetic and normoglycaemic cohorts respectively. Intramyocellular lipid content was negatively correlated to insulin sensitivity (r = –0.71, p < 0.02) in the obese diabetic group whereas no significant association was found in the obese normoglycaemic group. Conclusion/interpretation. This study shows that fat accumulates intramyocellulary while glycogen stores are simultaneously reduced in obese subjects with Type II (non-insulin-dependent) diabetes mellitus. Quantitatively, a major component of the excessive lipid accumulation could be secondary in origin, related to the diabetic state in itself, although a contribution from the altered insulin action cascade of obesity and diabetes cannot be excluded. In both groups significant positive relations were found between circulating and intramyocellular lipid. [Diabetologia (2001) 44: 824–833]