Fenretinide is a synthetic retinoid that is being tested in clinical trials for the treatment of breast cancer and insulin resistance, but its mechanism of action has been elusive. Recent in vitro data indicate that fenretinide inhibits dihydroceramide desaturase, an enzyme involved in the biosynthesis of lipotoxic ceramides that antagonize insulin action. Because of this finding, we assessed whether fenretinide could improve insulin sensitivity and glucose homeostasis in vitro and in vivo by controlling ceramide production. The effect of fenretinide on insulin action and the cellular lipidome was assessed in a number of lipid-challenged models including cultured myotubes and isolated muscles strips incubated with exogenous fatty acids and mice fed a high-fat diet. Insulin action was evaluated in the various models by measuring glucose uptake or disposal and the activation of Akt/PKB, a serine/threonine kinase that is obligate for insulin-stimulated anabolism. The effects of fenretinide on cellular lipid levels were assessed by LC-MS/MS. Fenretinide negated lipid-induced insulin resistance in each of the model systems assayed. Simultaneously, the drug depleted cells of ceramide, while promoting the accumulation of the precursor dihydroceramide, a substrate for the reaction catalyzed by Des1. These data suggest that fenretinide improves insulin sensitivity, at least in part, by inhibiting Des1 and suggest that therapeutics targeting this enzyme may be a viable therapeutic means for normalizing glucose homeostasis in the overweight and diabetic.