Low-carbohydrate, high-fat ketogenic diets (KD) have been suggested to be more effective in promoting weight loss than conventional caloric restriction, whereas their effect on hepatic glucose and lipid metabolism and the mechanisms by which they may promote weight loss remain controversial. The aim of this study was to explore the role of KD on liver and muscle insulin sensitivity, hepatic lipid metabolism, energy expenditure, and food intake. Using hyperinsulinemic-euglycemic clamps, we studied insulin action in mice fed a KD or regular chow (RC). Body composition was assessed by ¹H magnetic resonance spectroscopy. Despite being 15% lighter (P < 0.001) than RC-fed mice because of a 17% increase in energy expenditure (P < 0.001), KD-fed mice manifested severe hepatic insulin resistance, as reflected by decreased suppression (0% vs. 100% in RC-fed mice, P < 0.01) of endogenous glucose production during the clamp. Hepatic insulin resistance could be attributed to a 350% increase in hepatic diacylglycerol content (P < 0.001), resulting in increased activation of PKCε (P < 0.05) and decreased insulin receptor substrate-2 tyrosine phosphorylation (P < 0.01). Food intake was 56% (P < 0.001) lower in KD-fed mice, despite similar caloric intake, and could partly be attributed to a more than threefold increase (P < 0.05) in plasma N-acylphosphatidylethanolamine concentrations. In conclusion, despite preventing weight gain in mice, KD induces hepatic insulin resistance secondary to increased hepatic diacylglycerol content. Given the key role of nonalcoholic fatty liver disease in the development of type 2 diabetes and the widespread use of KD for the treatment of obesity, these results may have potentially important clinical implications.