Adiponectin is an adipocyte-specific secretory protein that circulates in serum as a hexamer of relatively low molecular weight (LMW) and a larger multimeric structure of high molecular weight (HMW). Serum levels of the protein correlate with systemic insulin sensitivity. The full-length protein affects hepatic gluconeogenesis through improved insulin sensitivity, and a proteolytic fragment of adiponectin stimulates beta oxidation in muscle. Here, we show that the ratio, and not the absolute amounts, between these two oligomeric forms (HMW to LMW) is critical in determining insulin sensitivity. We define a new index, S(A), that can be calculated as the ratio of HMW/(HMW + LMW). db/db mice, despite similar total adiponectin levels, display decreased S(A) values compared with wild type littermates, as do type II diabetic patients compared with insulin-sensitive individuals. Furthermore, S(A) improves with peroxisome proliferator-activated receptor-gamma agonist treatment (thiazolidinedione; TZD) in mice and humans. We demonstrate that changes in S(A) in a number of type 2 diabetic cohorts serve as a quantitative indicator of improvements in insulin sensitivity obtained during TZD treatment, whereas changes in total serum adiponectin levels do not correlate well at the individual level. Acute alterations in S(A) (DeltaS(A)) are strongly correlated with improvements in hepatic insulin sensitivity and are less relevant as an indicator of improved muscle insulin sensitivity in response to TZD treatment, further underscoring the conclusions from previous clamp studies that suggested that the liver is the primary site of action for the full-length protein. These observations suggest that the HMW adiponectin complex is the active form of this protein, which we directly demonstrate in vivo by its ability to depress serum glucose levels in a dose-dependent manner.