To study mechanisms by which free fatty acids (FFAs) cause hepatic insulin resistance, we have used euglycemic-hyperinsulinemic clamping with and without infusion of lipid/heparin (to raise or to lower plasma FFAs) in alert male rats. FFA-induced hepatic insulin resistance was associated with increased hepatic diacylglycerol content (+210%), increased activities of two serine/threonine kinases (protein kinase C-δ and inhibitor of κB [IκB] kinase-β), increased activation of the proinflammatory nuclear factor-κB (NF-κB) pathway (IκB kinase-β, +640%; IκB-α, −54%; and NF-κB, +73%), and increased expression of inflammatory cytokines (tumor necrosis factor-α, +1,700% and interleukin-1β, +440%) and plasma levels of monocyte chemoattractant protein-1 (+220%). We conclude that FFAs caused hepatic insulin resistance, which can produce overproduction of glucose and hyperglycemia, and initiated inflammatory processes in the liver that could potentially result in the development of steatohepatitis.