Using cre/loxP gene targeting, transgenic mice with muscle-specific inactivation of the GLUT4 gene (muscle GLUT4 KO) were generated and shown to develop a diabetes phenotype. To determine the mechanism, we examined insulin-stimulated glucose uptake and metabolism during hyperinsulinemic-euglycemic clamp in control and muscle GLUT4 KO mice before and after development of diabetes. Insulin-stimulated whole body glucose uptake was decreased by 55% in muscle GLUT4 KO mice, an effect that could be attributed to a 92% decrease in insulin-stimulated muscle glucose uptake. Surprisingly, insulin’s ability to stimulate adipose tissue glucose uptake and suppress hepatic glucose production was significantly impaired in muscle GLUT4 KO mice. To address whether these latter changes were caused by glucose toxicity, we treated muscle GLUT4 KO mice with phloridzin to prevent hyperglycemia and found that insulin-stimulated whole body and skeletal muscle glucose uptake were decreased substantially, whereas insulin-stimulated glucose uptake in adipose tissue and suppression of hepatic glucose production were normal after phloridzin treatment. In conclusion, these findings demonstrate that a primary defect in muscle glucose transport can lead to secondary defects in insulin action in adipose tissue and liver due to glucose toxicity. These secondary defects contribute to insulin resistance and to the development of diabetes.