Activation of Liver X receptors (LXRs), key transcriptional regulators of glucose metabolism, normalizes glycemia and improves insulin sensitivity in rodent models with insulin resistance. However, the molecular mechanism is unclear. This study is aimed to elucidate the mechanism of LXRs-mediated liver glucose metabolic regulation in vitro and in vivo. Db/db mice were used as an in vivo model of diabetes; palmitate (PA)-stimulated HepG2 cells were used as an in vitro cell model with impairment of insulin signaling. TO901317 (TO) was chosen as the LXRs agonist. We demonstrated that TO treatment for 14 days potently improved the hepatic glucose metabolism in db/db mice, including fasting blood glucose, fasting insulin level, and HOMA-IR. TO had no effect on the glucose metabolism in normal WT mice. TO-mediated activation of hepatic LXRs led to strong inhibition of ROS production accompanied by inactivation of JNK pathway and re-activation of Akt pathway. TO also suppressed the expression of gluconeogenic genes such as PEPCK and G-6-pase in db/db mice, but not in WT mice. In HepG2 cells, TO almost completely restored PA-induced Akt inactivation, and suppressed PA-stimulated ROS production and JNK activation. Interestingly, basal level of ROS was also inhibited by TO in HepG2 cells. TO significantly inhibited PA-stimulated expressions of gluconeogenic genes. Finally, we found that anti-oxidative genes, such as Nrf2, were up-regulated after LXRs activation by TO. These results strongly support the notion that activation of LXRs is critical in suppression of liver gluconeogenesis and improvement of insulin sensitivity in diabetic individuals. At molecular levels, the mode of action appears to be as fellows: under diabetic condition, ROS production is increased, JNK is activated, and Akt activity is inhibited; TO-mediated LXR activation potently inhibits ROS production, increases anti-oxidative gene expressions, suppresses JNK activation, and restores Akt activity. Our data provide new evidence to support LXRs as promising therapeutic targets for anti-diabetic drug development.