Elevated plasma free fatty acid (FFA) levels in obesity may play a pathogenic role in the development of insulin resistance. However, molecular mechanisms linking FFA to insulin resistance remain poorly understood. Oxidative stress acts as a link between FFA and hepatic insulin resistance. NADPH oxidase 3 (NOX3)-derived reactive oxygen species (ROS) may mediate the effect of TNF-α on hepatocytes, in particular the drop in cellular glycogen content. In the present study, we define the critical role of NOX3-derived ROS in insulin resistance in db/db mice and HepG2 cells treated with palmitate. The db/db mice displayed increased serum FFA levels, excess generation of ROS, and up-regulation of NOX3 expression, accompanied by increased lipid accumulation and impaired glycogen content in the liver. Similar results were obtained from palmitate-treated HepG2 cells. The exposure of palmitate elevated ROS production and NOX3 expression and, in turn, increased gluconeogenesis and reduced glycogen content in HepG2 cells. We found that palmitate induced hepatic insulin resistance through JNK and p38(MAPK) pathways, which are rescued by siRNA-mediated NOX3 reduction. In conclusion, our data demonstrate a critical role of NOX3-derived ROS in palmitate-induced insulin resistance in hepatocytes, indicating that NOX3 is the predominant source of palmitate-induced ROS generation and that NOX3-derived ROS may drive palmitate-induced hepatic insulin resistance through JNK and p38(MAPK) pathways.