Insulin resistance is associated with impaired skeletal muscle oxidation capacity and reduced mitochondrial number and function. Here, we report that adiponectin signaling regulates mitochondrial bioenergetics in skeletal muscle. Individuals with a family history of type 2 diabetes display skeletal muscle insulin resistance and mitochondrial dysfunction; adiponectin levels strongly correlate with mtDNA content. Knockout of the adiponectin gene in mice is associated with insulin resistance and low mitochondrial content and reduced mitochondrial enzyme activity in skeletal muscle. Adiponectin treatment of human myotubes in primary culture induces mitochondrial biogenesis, palmitate oxidation, and citrate synthase activity, and reduces the production of reactive oxygen species. The inhibition of adiponectin receptor expression by siRNA, or of AMPK by a pharmacological agent, blunts adiponectin induction of mitochondrial function. Our findings define a skeletal muscle pathway by which adiponectin increases mitochondrial number and function and exerts antidiabetic effects.