Inflammation, lipotoxicity and mitochondrial dysfunction have been implicated in the pathogenesis of obesity-induced insulin resistance and type 2 diabetes. However, how these factors are intertwined in the development of obesity/insulin resistance remains unclear. Here, we examine the role of mitochondrial fat oxidation on lipid-induced inflammation in skeletal muscle. We used skeletal muscle-specific Cpt1b knockout mouse model where the inhibition of mitochondrial fatty acid oxidation results in accumulation of lipid metabolites in muscle and elevated circulating free fatty acids. Gene expression of pro-inflammatory cytokines, chemokines, and cytokine- and members of TLR-signalling pathways were decreased in Cpt1bm-/- muscle. Inflammatory signalling pathways were not activated when evaluated by multiplex and immunoblot analysis. In addition, the inflammatory response to fatty acids was reduced in primary muscle cells derived from Cpt1bm-/- mice. Gene expression of Cd11c, the M1 macrophage marker, was decreased; while Cd206, the M2 macrophage marker, was increased in skeletal muscle of Cpt1bm-/- mice. Finally, expression of pro-inflammatory markers was decreased in white adipose tissue of Cpt1bm-/- mice. We show that the inflammatory response elicited by elevated intracellular lipids in skeletal muscle is repressed in Cpt1bm-/- mice, strongly supporting the hypothesis that mitochondrial processing of fatty acids is essential for the lipid-induction of inflammation in muscle.