Abnormalities in insulin action are the characteristics of type 2 diabetes. Dominant-negative muscle-specific IGF-I receptor (MKR) mice exhibit elevated lipid levels at an early age and eventually develop type 2 diabetes. To evaluate the role of elevated lipids in the progression of the diabetic state, MKR mice were treated with WY14,643, a peroxisome proliferator–activated receptor (PPAR)-α agonist. WY14,643 treatment markedly reduced serum fatty acid and triglyceride levels within a few days, as well as muscle triglyceride levels, and subsequently normalized glucose and insulin levels in MKR mice. Hyperinsulinemic-euglycemic clamp analysis showed that WY14,643 treatment enhanced muscle and adipose tissue glucose uptake by improving whole-body insulin sensitivity. Insulin suppression of endogenous glucose production by the liver of MKR mice was also improved. The expression of genes involved in fatty acid oxidation was increased in liver and skeletal muscle, whereas gene expression levels of hepatic gluconeogenic enzymes were decreased in WY14,643-treated MKR mice. WY14,643 treatment also improved the pattern of glucose-stimulated insulin secretion from the perfused pancreata of MKR mice and reduced the β-cell mass. Taken together, these findings suggest that the reduction in circulating or intracellular lipids by activation of PPAR-α improved insulin sensitivity and the diabetic condition of MKR mice.