Pancreatic‐derived factor (PANDER) is a pancreatic islet‐specific cytokine that cosecretes with insulin and is important for β cell function. Here, we show that PANDER is constitutively expressed in hepatocytes, and its expression is significantly increased in steatotic livers of diabetic insulin‐resistant db/db mice and mice fed a high‐fat diet. Overexpression of PANDER in the livers of C57Bl/6 mice promoted lipogenesis, with increased Forkhead box 1 (FOXO1) expression, whereas small interfering RNA–mediated knockdown of hepatic PANDER significantly attenuated steatosis, with reduced FOXO1 expression in db/db mice. Hepatic PANDER silencing also attenuated insulin resistance and hyperglycemia in db/db mice. In cultured hepatocytes, PANDER overexpression induced lipid deposition, increased FOXO1 expression, and suppressed insulin‐stimulated Akt activation and FOXO1 inactivation. Moreover, FOXO1 overexpression increased PANDER expression in cultured hepatocytes and mouse livers. Conclusion: PANDER promotes lipogenesis and compromises insulin signaling in the liver by increasing FOXO1 activity. PANDER may represent a potential therapeutic target for the treatment of fatty liver and insulin resistance. (HEPATOLOGY 2011;)