In humans with obesity or type 2 diabetes, insulin target tissues are resistant to many actions of insulin. The atypical protein kinase C (PKC) isoforms λ and ζ are downstream of phosphatidylinositol-3 kinase (PI3K) and are required for maximal insulin stimulation of glucose uptake. Phosphoinositide-dependent protein kinase-1 (PDK-1), also downstream of PI3K, mediates activation of atypical PKC isoforms and Akt. To determine whether impaired PKCλ/ζ or PDK-1 activation plays a role in the pathogenesis of insulin resistance, we measured the activities of PKCλ/ζ and PDK-1 in vastus lateralis muscle of lean, obese, and obese/type 2 diabetic humans. Biopsies were taken after an overnight fast and after a 3-h hyperinsulinemic-euglycemic clamp. Obese subjects were also studied after weight loss on a very-low-calorie diet. Insulin-stimulated glucose disposal rate is reduced 26% in obese subjects and 62% in diabetic subjects (both comparisons P < 0.001). Insulin-stimulated insulin receptor substrate (IRS)-1 tyrosine phosphorylation and PI3K activity are impaired 40–50% in diabetic subjects compared with lean or obese subjects. Insulin stimulates PKCλ/ζ activity ∼2.3-fold in lean subjects; the increment above basal is reduced 57% in obese and 65% in diabetic subjects. PKCλ/ζ protein amount is decreased 46% in diabetic subjects but is normal in obese nondiabetic subjects, indicating impaired insulin action on PKCλ/ζ. Importantly, weight loss in obese subjects normalizes PKCλ/ζ activation and increases IRS-1 phosphorylation and PI3K activity. Insulin also stimulates PDK-1 activity approximately twofold with no impairment in obese or diabetic subjects. In contrast to our previous data on Akt, reduced insulin-stimulated PKCλ/ζ activity could play a role in the pathogenesis of insulin resistance in muscle of obese and type 2 diabetic subjects.