Insulin resistance is often associated with obesity. We tested whether augmentation of triglyceride synthesis in adipose tissue by transgenic overexpression of the diacylglycerol aclytransferase-1 (Dgat1) gene causes obesity and/or alters insulin sensitivity. Male FVB mice expressing the aP2-Dgat1 had threefold more Dgat1 mRNA and twofold greater DGAT activity levels in adipose tissue. After 30 weeks of age, these mice had hyperglycemia, hyperinsulinemia, and glucose intolerance on a high-fat diet but were not more obese than wild-type littermates. Compared with control littermates, Dgat1 transgenic mice were both insulin and leptin resistant and had markedly elevated plasma free fatty acid levels. Adipocytes from Dgat1 transgenic mice displayed increased basal and isoproterenol-stimulated lipolysis rates and decreased gene expression for fatty acid uptake. Muscle triglyceride content was unaffected, but liver mass and triglyceride content were increased by 20 and 300%, respectively. Hepatic insulin signaling was suppressed, as evidenced by decreased phosphorylation of insulin receptor-β (Tyr^1,131/Tyr^1,146) and protein kinase B (Ser⁴⁷³). Gene expression data suggest that the gluconeogenic enzymes, glucose-6-phosphatase and phosphoenolpyruvate carboxykinase, were upregulated. Thus, adipose overexpression of Dgat1 gene in FVB mice leads to diet-inducible insulin resistance, which is secondary to redistribution of fat from adipose tissue to the liver in the absence of obesity.