Impaired insulin-mediated suppression of hepatic glucose production (HGP) plays a major role in the pathogenesis of type 2 diabetes (T2D), yet the molecular mechanism by which this occurs remains unknown. Using a novel in vivo metabolomics approach, we show that the major mechanism by which insulin suppresses HGP is through reductions in hepatic acetyl CoA by suppression of lipolysis in white adipose tissue (WAT) leading to reductions in pyruvate carboxylase flux. This mechanism was confirmed in mice and rats with genetic ablation of insulin signaling and mice lacking adipose triglyceride lipase. Insulin's ability to suppress hepatic acetyl CoA, PC activity, and lipolysis was lost in high-fat-fed rats, a phenomenon reversible by IL-6 neutralization and inducible by IL-6 infusion. Taken together, these data identify WAT-derived hepatic acetyl CoA as the main regulator of HGP by insulin and link it to inflammation-induced hepatic insulin resistance associated with obesity and T2D.