Insulin resistance is frequently associated with increased lipid content in muscle and liver. Insulin excess stimulates tissue lipid accumulation. To examine the effects of insulin and improved glycemia on insulin sensitivity and intracellular lipids, we performed stepped (1, 2, and 4 mU x min(-1) x kg(-1)) hyperinsulinemic-euglycemic clamps in eight type 2 diabetic and six nondiabetic control subjects at baseline and after 12 and 67 h of insulin-mediated near-normoglycemia (118 +/- 7 mg/dl). Intrahepatocellular lipids (IHCLs) and intramyocellular lipids (IMCLs) of soleus (IMCL-S) and tibialis anterior muscle (IMCL-TA) were measured with (1)H nuclear magnetic resonance spectroscopy. At baseline, nondiabetic subjects had an approximate twofold higher insulin sensitivity (P < 0.02) and lower IHCLs than diabetic patients (5.8 +/- 1.2 vs. 18.3 +/- 4.2%, P < 0.03), in whom IMCL-TA negatively correlated with insulin sensitivity (r = -0.969, P < 0.001). After a 67-h insulin infusion in diabetic patients, IMCL-S and IHCLs were increased (P < 0.05) by approximately 36 and approximately 18%, respectively, and correlated positively with insulin sensitivity (IMCL-S: r = 0.982, P < 0.0005; IHCL: r = 0.865, P < 0.03), whereas fasting glucose production, measured with D-[6,6-(2)H(2)]glucose, decreased by approximately 10% (P < 0.04). In conclusion, these results indicate that IMCLs relate to insulin resistance in type 2 diabetic patients at baseline and that insulin-mediated near-normoglycemia for approximately 3 days reduces fasting glucose production but stimulates lipid accumulation in liver and muscle without affecting insulin sensitivity.