To examine the influence of elevated free fatty acid (FFA) levels on hepatic glucose production (HGP) and oxidative and nonoxidative pathways of glucose metabolism, 12 healthy subjects participated in two euglycemic insulin-clamp studies performed with and without infusion of Intralipid plus heparin. To elucidate the role of skeletal muscle in this putative interaction, we performed muscle biopsies for the measurement of activities of glycogen synthase (GS), pyruvate dehydrogenase (PDH), and carnitine palmitoyltransferase (CPT). Infusion of Intralipid plus heparin caused an increase in plasma FFA concentrations and rate of lipid oxidation (measured by indirect calorimetry) that was not inhibited by insulin. Suppression of HGP by insulin was impaired by elevated plasma FFA levels. Furthermore, the increase in plasma FFA was associated with a 20% reduction in total glucose metabolism (P < 0.01), which was completely accounted for by a reduction in the rate of glucose oxidation. Although the fractional activity of GS was increased by insulin, elevation of plasma FFA had no influence on this key enzyme of glycogen synthesis. In addition, the activities of PDH and CPT were uninfluenced by the elevation of FFA, suggesting that oxidative processes in skeletal muscle were not a major target for the operative glucose-fatty acid cycle under the current conditions. Taken together, the data indicate that the interaction between FFA and glucose metabolism also involves impaired suppression of HGP by insulin.