Nonalcoholic fatty liver disease (NAFLD) and insulin resistance are common in overweight adolescents. The purpose of this study was to determine the relation between NAFLD and insulin sensitivity in liver and skeletal muscle by studying overweight adolescents with a normal or high intrahepatic triglyceride (IHTG) content, who were matched for age, sex, body mass index (BMI; in kg/m2), and Tanner stage. Stable-isotope-labeled tracer infusion and the hyperinsulinemic-euglycemic clamp procedure were used to assess skeletal muscle and hepatic insulin sensitivity, and magnetic resonance spectroscopy was used to assess the IHTG content in 10 overweight (BMI = 35.9 ± 1.3) adolescents with NAFLD (IHTG = 28.4 ± 3.4%) and 10 overweight (BMI = 36.6 ± 1.5) adolescents with a normal IHTG content (3.3 ± 0.5%). The baseline plasma glucose concentration and the rate of appearance of glucose in plasma were the same in subjects with a normal (87.1 ± 1.2 mg/dL, 16.2 ± 1.1 μmol · kg fat-free mass−1 · min−1) or high (89.2 ± 2.5 mg/dL, 16.3 ± 1.2 μmol · kg fat-free mass−1 · min−1) IHTG content. However, compared with subjects who had a normal IHTG content, subjects with NAFLD had a lower hepatic insulin sensitivity index, based on baseline glucose kinetics and insulin concentrations (4.0 ± 0.5 compared with 2.4 ± 0.4; P < 0.05) and an impaired increase in glucose uptake during insulin infusion (169 ± 28.1% compared with 67 ± 9.6% above baseline; P < 0.01). In addition, the plasma triglyceride concentration was greater and the plasma HDL-cholesterol concentration was lower in subjects with NAFLD than in those with a normal IHTG content. An elevated IHTG content in overweight adolescents is associated with dyslipidemia and with insulin-resistant glucose metabolism in both liver and skeletal muscle.