Dietary protein intake is linked to an increased incidence of type 2 diabetes (T2D). Although dietary protein dilution (DPD) can slow the progression of some aging-related disorders, whether this strategy affects the development and risk for obesity-associated metabolic disease such as T2D is unclear. Here, we determined that DPD in mice and humans increases serum markers of metabolic health. In lean mice, DPD promoted metabolic inefficiency by increasing carbohydrate and fat oxidation. In nutritional and polygenic murine models of obesity, DPD prevented and curtailed the development of impaired glucose homeostasis independently of obesity and food intake. DPD-mediated metabolic inefficiency and improvement of glucose homeostasis were independent of uncoupling protein 1 (UCP1), but required expression of liver-derived fibroblast growth factor 21 (FGF21) in both lean and obese mice. FGF21 expression and secretion as well as the associated metabolic remodeling induced by DPD also required induction of liver-integrated stress response–driven nuclear protein 1 (NUPR1). Insufficiency of select nonessential amino acids (NEAAs) was necessary and adequate for NUPR1 and subsequent FGF21 induction and secretion in hepatocytes in vitro and in vivo. Taken together, these data indicate that DPD promotes improved glucose homeostasis through an NEAA insufficiency–induced liver NUPR1/FGF21 axis.