To determine the effect of non-esterified fatty acids (NEFA) on glucagon action, glucagon was infused intraportally (1.65 ng.min-1.kg-1) for 3 h into 18 h fasted, pancreatic-clamped conscious dogs in the presence (NEFA+GGN) or absence (GGN) of peripheral Intralipid plus heparin infusion. Additionally, hyperglycemic (HG), hyperglycemic/hyperlipidemic (NEFA+HG), and glycerol plus glucagon (GLYC+GGN) controls were studied. Arterial plasma glucagon concentrations rose equally in GGN, NEFA+GGN, and GLYC+GGN but remained basal in hyperglycemic controls. Peripheral infusions of Intralipid and heparin increased arterial plasma NEFA concentrations equally in NEFA+GGN and NEFA+HG and did not change in other protocols. Following 15-min, glucagon infusion resulted in a rapid, brief increase in net hepatic glycogenolysis (NH GLY, mg.min-1.kg-1) of ~6.0 in GGN and GLYC+GGN but only increased by 3.8 ± 1.3 in NEFA+GGN. Thus, in the latter increases in NH GLY and consequently net hepatic glucose output (NHGO) were blunted by 40%, with no difference between the groups in the last 2.5 h of the study. NHGO and NH GLY did not significantly decrease in HG and NEFA+HG. Net hepatic gluconeogenic flux did not change in GGN, GLYC+GGN, or HG. However, Intralipid and heparin infusion resulted in similar increases in net hepatic gluconeogenic flux in NEFA+GGN and NEFA+HG. Thus, elevated NEFA limit the initial increase in glucagon-stimulated HGO by blunting glycogenolysis, without having any effect on the gluconeogenic or glycogenolytic contributions or NHGO thereafter.