Peroxisome proliferator-activated receptor-gamma co-activator 1alpha (PGC1alpha) is a promiscuous co-activator that plays a key role in regulating mitochondrial biogenesis and fuel homeostasis. Emergent evidence links decreased skeletal muscle PGC1alpha activity and coincident impairments in mitochondrial performance to the development of insulin resistance in humans. Here we used rodent models to demonstrate that muscle mitochondrial efficiency is compromised by diet-induced obesity and is subsequently rescued by exercise training. Chronic high fat feeding caused accelerated rates of incomplete fatty acid oxidation and accumulation of beta-oxidative intermediates. The capacity of muscle mitochondria to fully oxidize a heavy influx of fatty acid depended on factors such as fiber type and exercise training and was positively correlated with expression levels of PGC1alpha. Likewise, an efficient lipid-induced substrate switch in cultured myocytes depended on adenovirus-mediated increases in PGC1alpha expression. Our results supported a novel paradigm in which a high lipid supply, occurring under conditions of low PGC1alpha, provokes a disconnect between mitochondrial beta-oxidation and tricarboxylic acid cycle activity. Conversely, the metabolic remodeling that occurred in response to PGC1alpha overexpression favored a shift from incomplete to complete beta-oxidation. We proposed that PGC1alpha enables muscle mitochondria to better cope with a high lipid load, possibly reflecting a fundamental metabolic benefit of exercise training.