Type 2 diabetes is characterized by fasting hyperglycemia, secondary to hepatic insulin resistance and increased glucose production. Peroxisome proliferator-activated receptor gamma coactivator-1 (PGC-1) is a transcriptional coactivator that is thought to control adaptive responses to physiological stimuli. In the liver, the expression of PGC-1 is induced by fasting, and this effect promotes gluconeogenesis. To examine whether PGC-1 is involved in the pathogenesis of hepatic insulin resistance, we generated transgenic (TG) mice with whole-body overexpression of human PGC-1 and evaluated glucose homeostasis with a euglycemic hyperinsulinemic clamp. TG mice overexpressed PGC-1 within a physiological range (by ~2-fold) in the liver, skeletal muscle, brain, and heart. In the liver, PGC-1 overexpression resulted in increased expression of hepatocyte nuclear factor (HNF4) and the gluconeogenic enzymes phosphoenol-pyruvate carboxykinase (PEPCK) and glucose-6-phosphatase (G6Pase). PGC-1 overexpression caused hepatic insulin resistance, manifested by higher glucose production and diminished insulin suppression of gluconeogenesis. Paradoxically, PGC-1 overexpression improved muscle insulin sensitivity, as evidenced by elevated insulin-stimulated Akt phosphorylation and peripheral glucose disposal. TG mice had increased content of myoglobin and troponin I slow in muscle, indicating fiber-type switching. PGC-1 overexpression also led to lower reactive oxygen species production by mitochondria and reduced IKK/IB signaling in muscle. The dichotomous effect of PGC-1 overexpression in liver and muscle suggests that PGC-1 is a fuel gauge that couples energy demands (muscle) with the corresponding fuel supply (liver). Thus, under conditions of physiologic stress (i.e., prolonged fast and exercise training), increased hepatic glucose production may help sustain glucose utilization in peripheral tissues.