Nonalcoholic fatty liver disease (NAFLD) is now the most frequent chronic liver disease in Western societies, affecting one in four adults in the USA, and is strongly associated with hepatic insulin resistance, a major risk factor in the pathogenesis of type 2 diabetes. Although the cellular mechanisms underlying this relationship are unknown, hepatic accumulation of diacylglycerol (DAG) in both animals and humans has been linked to hepatic insulin resistance. In this Perspective, we discuss the role of DAG activation of protein kinase Cε as the mechanism responsible for NAFLD-associated hepatic insulin resistance seen in obesity, type 2 diabetes, and lipodystrophy.