Nonalcoholic fatty liver disease (NAFLD) is a major contributing factor to hepatic insulin resistance in type 2 diabetes. Diacylglycerol acyltransferase (Dgat), of which there are two isoforms (Dgat1 and Dgat2), catalyzes the final step in triglyceride synthesis. We evaluated the metabolic impact of pharmacological reduction of DGAT1 and -2 expression in liver and fat using antisense oligonucleotides (ASOs) in rats with diet-induced NAFLD. Dgat1 and Dgat2 ASO treatment selectively reduced DGAT1 and DGAT2 mRNA levels in liver and fat, but only Dgat2 ASO treatment significantly reduced hepatic lipids (diacylglycerol and triglyceride but not long chain acyl CoAs) and improved hepatic insulin sensitivity. Because Dgat catalyzes triglyceride synthesis from diacylglycerol, and because we have hypothesized that diacylglycerol accumulation triggers fat-induced hepatic insulin resistance through protein kinase C epsilon activation, we next sought to understand the paradoxical reduction in diacylglycerol in Dgat2 ASO-treated rats. Within 3 days of starting Dgat2 ASO therapy in high fat-fed rats, plasma fatty acids increased, whereas hepatic lysophosphatidic acid and diacylglycerol levels were similar to those of control rats. These changes were associated with reduced expression of lipogenic genes (SREBP1c, ACC1, SCD1, and mtGPAT) and increased expression of oxidative/thermogenic genes (CPT1 and UCP2). Taken together, these data suggest that knocking down Dgat2 protects against fat-induced hepatic insulin resistance by paradoxically lowering hepatic diacylglycerol content and protein kinase C epsilon activation through decreased SREBP1c-mediated lipogenesis and increased hepatic fatty acid oxidation.