Aims/hypothesis: Impaired regulation of lipolysis and accumulation of lipid intermediates may contribute to obesity-related insulin resistance and type 2 diabetes mellitus. We investigated insulin-mediated suppression of lipolysis in abdominal subcutaneous adipose tissue (AT) and skeletal muscle (SM) of obese men with normal glucose tolerance (NGT) and obese type 2 diabetic men. Methods: Eleven NGT men and nine long-term diagnosed type 2 diabetic men (7 ± 1 years), matched for age (58 ± 2 vs 62 ± 2 years), BMI (31.4 ± 0.6 vs 30.5 ± 0.6 kg/m²) and V × O 2 max (28.9 ± 1.5 vs 29.5 ± 2.4 ml kg^-1 min^-1) participated in this study. Interstitial glycerol concentrations in AT and SM were assessed using microdialysis during a 1 h basal period and a 6 h stepwise hyperinsulinaemic-euglycaemic clamp (8, 20 and 40 mU m^-2 min ^-1). AT and SM biopsies were collected to investigate underlying mechanisms. Results: Hyperinsulinaemia suppressed interstitial SM glycerol concentrations less in men with type 2 diabetes (-7 ± 6%, -13 ± 9% and -27 ± 9%) compared with men with NGT (-21 ± 7%, -38 ± 8% and -53 ± 8%) (p = 0.014). This was accompanied by increased circulating fatty acid and glycerol concentrations, a lower glucose infusion rate (21.8 ± 3.1 vs 30.5 ± 2.0 μmol kg body weight^-1 min^-1; p < 0.05), higher hormone-sensitive lipase (HSL) serine 660 phosphorylation, increased saturated diacylglycerol (DAG) lipid species in the muscle membrane and increased protein kinase C (PKC) activation in type 2 diabetic men vs men with NGT. No significant differences in insulin-mediated reduction in AT interstitial glycerol were observed between groups. Conclusions/interpretation: Our results suggest that a blunted insulin-mediated suppression of SM lipolysis may promote the accumulation of membrane saturated DAG, aggravating insulin resistance, at least partly mediated by PKC. This may represent an important mechanism involved in the progression of insulin resistance towards type 2 diabetes. Trial registration: ClinicalTrials.gov NCT01680133 © 2013 The Author(s).