To determine the mechanism(s) for insulin resistance induced by fatty acids, we measured the ability of insulin to activate phosphoinositide 3-kinase (PI3K) and multiple distal pathways in rats. Following a 5-h infusion of lipid or glycerol (control), rats underwent a euglycemic hyperinsulinemic clamp. Insulin stimulated IRS-1-associated PI3K activity in muscle of glycerol-infused rats 2.4-fold but had no effect in lipid-infused rats. IRS-2- and phosphotyrosine-associated PI3K activity were increased 3.5- and 4.8-fold, respectively, by insulin in glycerol-infused rats but only 1.6- and 2.3-fold in lipid-infused rats. Insulin increased Akt1 activity 3.9-fold in glycerol-infused rats, and this was impaired 41% in lipid-infused rats. Insulin action on Akt2 and p70S6K were not impaired, whereas activation of protein kinase C lambda/zeta activity was reduced 47%. Insulin inhibited glycogen synthase kinase 3alpha (GSK-3alpha) activity by 30% and GSK-3beta activity by approximately 65% and increased protein phosphatase-1 activity by 40-47% in both glycerol- and lipid-infused rats. Insulin stimulated glycogen synthase activity 2.0-fold in glycerol-infused rats but only 1.4-fold in lipid-infused rats. Thus, 1) elevation of fatty acids differentially affects insulin action on pathways distal to PI3K, impairing activation of Akt1 and protein kinase C lambda/zeta and 2) insulin action on glycogen synthase can be regulated independent of effects on GSK-3 and protein phosphatase-1 activity in vivo.