To address the potential role of lipotoxicity and mitochondrial function in insulin resistance, we studied mice with high-level expression of uncoupling protein-1 in skeletal muscle (UCP-H mice). Body weight, body length, and bone mineral density were decreased in UCP-H mice compared with wild-type littermates. Forelimb grip strength and muscle mass were strikingly decreased, whereas muscle triglyceride content was increased fivefold in UCP-H mice. Electron microscopy demonstrated lipid accumulation and large mitochondria with abnormal architecture in UCP-H skeletal muscle. ATP content and key mitochondrial proteins were decreased in UCP-H muscle. Despite mitochondrial dysfunction and increased intramyocellular fat, fasting serum glucose was 22% lower and insulin-stimulated glucose transport 80% higher in UCP-H animals. These beneficial effects on glucose metabolism were associated with increased AMP kinase and hexokinase activities, as well as elevated levels of GLUT4 and myocyte enhancer factor-2 proteins A and D in skeletal muscle. These results suggest that UCP-H mice have a mitochondrial myopathy due to depleted energy stores sufficient to compromise growth and impair muscle function. Enhanced skeletal muscle glucose transport in this setting suggests that excess intramyocellular lipid and mitochondrial dysfunction are not sufficient to cause insulin resistance in mice.