Excessive hepatic glucose production is a contributing factor to fasting hyperglycemia in diabetes. Insulin suppresses hepatic glucose production by inhibiting the expression of two gluconeogenic enzymes, phosphoenolpyruvate carboxykinase (PEPCK) and glucose-6-phosphatase (G-6-Pase). The forkhead transcription factor Foxo1 has been implicated as a mediator of insulin action in regulating hepatic gluconeogenesis, and a Foxo1 mutant (Foxo1-Δ256), devoid of its carboxyl domain, has been shown to interfere with Foxo1 function and inhibit gluconeogenic gene expression in cultured cells. To study the effect of Foxo1-Δ256 on glucose metabolism in animals, the Foxo1-Δ256 cDNA was delivered to the livers of mice by adenovirus-mediated gene transfer. Hepatic Foxo1-Δ256 production resulted in inhibition of gluconeogenic activity, as evidenced by reduced PEPCK and G-6-Pase expression in the liver. Mice treated with the Foxo1-Δ256 vector exhibited significantly reduced blood glucose levels. In contrast, blood glucose levels in control vector-treated animals remained unchanged, which coincided with the lack of alterations in the expression levels of PEPCK and G-6-Pase. When tested in diabetic db/db mice, hepatic production of Foxo1-Δ256 was shown to reduce fasting hyperglycemia. Furthermore, we showed that hepatic Foxo1 expression was deregulated as a result of insulin resistance in diabetic mice and that Foxo1-Δ256 interfered with Foxo1 function via competitive binding to target promoters. These results demonstrated that functional inhibition of Foxo1, caused by hepatic expression of its mutant, is associated with reduced hepatic gluconeogenic activity and improved fasting glycemia in diabetic mice.