Bile acid sequestrants have been shown to lower glucose levels in patients with type 2 diabetes. To investigate how colesevelam (CL) HCl improves hyperglycemia, studies were conducted in diet-induced obesity (F-DIO) rats, which develop insulin resistance when fed a high-energy (high fat/high sucrose) diet (HE). The rats were fed HE; HE + 2% CL; HE + 0.02% SC-435 (SC), an apical sodium-dependent bile acid transporter inhibitor; and regular chow (controls). After 4 wk of treatment, both in the HE group and the SC + HE group, plasma glucose and insulin levels remained elevated compared with baseline values throughout an oral glucose tolerance test (OGTT). In contrast, in the CL + HE group, plasma glucose levels returned to baseline by the end of the test, and insulin peaked in 15–30 min and then returned to baseline. CL induced release of glucagon-like peptide-1 (GLP-1) because the area under the curve of plasma total GLP-1 in the CL + HE group was significantly greater than in the HE group during the OGTT. Bile acid concentrations in the portal blood did not decrease in the HE group but declined significantly both in the CL + HE and SC + HE groups with reduced farnesoid X receptor activation compared with controls. We concluded that CL reduces plasma glucose levels by improving insulin resistance in this rat model. It is unlikely that the improvement is attributable to decreased bile acid flux to the liver but is likely secondary to induced GLP-1 secretion, which improves insulin release.