It has been suggested that the insulin resistance of non-insulin-dependent diabetes mellitus (NIDDM) may be caused by substrate competition between glucose and free fatty acids (FFAs) (Randle's cycle). We measured substrate oxidation and energy metabolism in 10 nonobese untreated NIDDM patients with fasting glucose levels of 7–8 mM with indirect calorimetry in the basal state and during an isoglycemic-hyperinsulinemic (∼100 mU/L) clamp without (control) and with a concomitant infusion (∼0.35 mmol/min) of Intralipid, a triglyceride emulsion. In the control study, fasting rates of total glucose turnover ([3⁻³H]glucose) and glucose and lipid oxidation (9.4 ± 1.4, 7.3 ± 1.3, and 3.0 ± 0.4 μmol · kg⁻¹ · min⁻¹, respectively) were comparable with those of nondiabetic individuals. After insulin administration, lipid oxidation was normally suppressed (to 1.3 ± 0.3 μ · kg⁻¹ · min⁻¹ P < 0.01), as were the circulating levels of FFA, glycerol, and β-hydroxybutyrate, whereas glucose oxidation doubled (14.1 ± 1.8 μmol; · kg⁻¹ · min⁻¹ P <0.01). Because glycemia was clamped at 7.5 mM, endogenous glucose production (EGP) was completely suppressed, and total glucose disposal was stimulated (to 25.7 ± 5.2 μmol · kg⁻¹ · min⁻¹ P < 0.01 vs. baseline), but glucose clearance (3.6 ± 0.8 ml · kg⁻¹ · min⁻¹) was 30% reduced compared with normal. With concomitant lipid infusion, FFA, glycerol, and β-hydroxybutyrate all rose during the clamp; correspondingly, lipid oxidation was maintained at fasting rates (3.6 ± 0.2 μmol · kg⁻¹ · min⁻¹ P < 0.01 vs. control). As a consequence, the insulin-induced increase in glucose oxidation was abolished (7.9 ±1.3 μmol · kg⁻¹ · min⁻¹ P < 0.01 vs. control), and total glucose disposal was inhibited (21.8 ± 4.6 μmol · kg⁻¹ · min⁻¹ P < 0.05 vs. control) by an amount almost equal to the decrement in glucose oxidation. Lipid infusion did not detectably interfere with insulin-induced suppression of EGP. Energy expenditure failed to increase during the control insulin clamp but was significantly stimulated (∼10%, P < 0.01) by concomitant lipid administration (diet-induced thermogenesis). We conclude that in mildly hyperglycemic, nonobese NIDDM patients, excessive fatty substrate oxidation is unlikely to be responsible for the insulin resistance; increased lipid provision, however, enhances lipid oxidation and energy expenditure and inhibits glucose oxidation and total disposal. Thus, in this type of diabetes, Randle's cycle does not appear to be spontaneously overactive but can be induced acutely, with metabolic and energetic consequences similar to those observed in nondiabetic subjects.