Insulin resistance is a characteristic feature of type 2 diabetes and obesity. Insulin-resistant individuals manifest multiple disturbances in free fatty acid (FFA) metabolism and have excessive lipid accumulation in insulin target tissues. Although much evidence supports a causal role for altered FFA metabolism in the development of insulin resistance, i.e., "lipotoxicity", the intracellular mechanisms by which elevated plasma FFA levels cause insulin resistance have yet to be completely elucidated. Recent studies have implicated a possible role for mitochondrial dysfunction in the pathogenesis of insulin resistance in skeletal muscle. We examined the effect of FFA metabolites [palmitoyl carnitine (PC), palmitoyl-coenzyme A (CoA), and oleoyl-CoA] on ATP synthesis in mitochondria isolated from mouse and human skeletal muscle. At concentrations ranging from 0.5 to 2 microM, these FFA metabolites stimulated ATP synthesis; however, above 5 microM, there was a dose-response inhibition of ATP synthesis. Furthermore, 10 microM PC inhibits ATP synthesis from pyruvate. Elevated PC concentrations (> or =10 microM) inhibit electron transport chain activity and decrease the mitochondrial inner membrane potential. These acquired mitochondrial defects, caused by a physiological increase in the concentration of FFA metabolites, provide a mechanistic link between lipotoxicity, mitochondrial dysfunction, and muscle insulin resistance.