The regulation of fat and glucose metabolism in the liver is controlled primarily by insulin and glucagon. Changes in the circulating concentrations of these hormones signal fed or starvation states and elicit counter-regulatory responses that maintain normoglycaemia. Here we show that in normal mice, plasma insulin inhibits the forkhead transcription factor Foxa2 by nuclear exclusion and that in the fasted (low insulin) state Foxa2 activates transcriptional programmes of lipid metabolism and ketogenesis. In insulin-resistant or hyperinsulinaemic mice, Foxa2 is inactive and permanently located in the cytoplasm of hepatocytes. In these mice, adenoviral expression of Foxa2T156A, a nuclear, constitutively active Foxa2 that cannot be inhibited by insulin, decreases hepatic triglyceride content, increases hepatic insulin sensitivity, reduces glucose production, normalizes plasma glucose and significantly lowers plasma insulin. These changes are associated with increased expression of genes encoding enzymes of fatty acid oxidation, ketogenesis and glycolysis. Chronic hyperinsulinaemia in insulin-resistant syndromes results in the cytoplasmic localization and inactivation of Foxa2, thereby promoting lipid accumulation and insulin resistance in the liver. Pharmacological intervention to inhibit phosphorylation of Foxa2 may be an effective treatment for type 2 diabetes.