Type 2 diabetes is characterized by fasting hyperglycemia, secondary to hepatic insulin resistance and increased glucose production. Peroxisome proliferator-activated receptor-gamma coactivator-1alpha (PGC-1alpha) is a transcriptional coactivator that is thought to control adaptive responses to physiological stimuli. In liver, PGC-1alpha expression is induced by fasting, and this effect promotes gluconeogenesis. To examine whether PGC-1alpha is involved in the pathogenesis of hepatic insulin resistance, we generated transgenic (TG) mice with whole body overexpression of human PGC-1alpha and evaluated glucose homeostasis with a euglycemic-hyperinsulinemic clamp. PGC-1alpha was moderately (approximately 2-fold) overexpressed in liver, skeletal muscle, brain, and heart of TG mice. In liver, PGC-1alpha overexpression resulted in increased expression of hepatocyte nuclear factor-4alpha and the gluconeogenic enzymes phosphoenolpyruvate carboxykinase and glucose-6-phosphatase. PGC-1alpha overexpression caused hepatic insulin resistance, manifested by higher glucose production and diminished insulin suppression of gluconeogenesis. Paradoxically, PGC-1alpha overexpression improved muscle insulin sensitivity, as evidenced by elevated insulin-stimulated Akt phosphorylation and peripheral glucose disposal. Content of myoglobin and troponin I slow protein was increased in muscle of TG mice, indicating fiber-type switching. PGC-1alpha overexpression also led to lower reactive oxygen species production by mitochondria and reduced IKK/IkappaB signaling in muscle. Feeding a high-fat diet to TG mice eliminated the increased muscle insulin sensitivity. The dichotomous effect of PGC-1alpha overexpression in liver and muscle suggests that PGC-1alpha is a fuel gauge that couples energy demands (muscle) with the corresponding fuel supply (liver). Thus, under conditions of physiological stress (i.e., prolonged fast and exercise training), increased hepatic glucose production may help sustain glucose utilization in peripheral tissues.