Myostatin (Mstn) is a secreted growth factor expressed in skeletal muscle and adipose tissue that negatively regulates skeletal muscle mass. Mstn^−/− mice have a dramatic increase in muscle mass, reduction in fat mass, and resistance to diet-induced and genetic obesity. To determine how Mstn deletion causes reduced adiposity and resistance to obesity, we analyzed substrate utilization and insulin sensitivity in Mstn^−/− mice fed a standard chow. Despite reduced lipid oxidation in skeletal muscle, Mstn^−/− mice had no change in the rate of whole body lipid oxidation. In contrast, Mstn^−/− mice had increased glucose utilization and insulin sensitivity as measured by indirect calorimetry, glucose and insulin tolerance tests, and hyperinsulinemic-euglycemic clamp. To determine whether these metabolic effects were due primarily to the loss of myostatin signaling in muscle or adipose tissue, we compared two transgenic mouse lines carrying a dominant negative activin IIB receptor expressed specifically in adipocytes or skeletal muscle. We found that inhibition of myostatin signaling in adipose tissue had no effect on body composition, weight gain, or glucose and insulin tolerance in mice fed a standard diet or a high-fat diet. In contrast, inhibition of myostatin signaling in skeletal muscle, like Mstn deletion, resulted in increased lean mass, decreased fat mass, improved glucose metabolism on standard and high-fat diets, and resistance to diet-induced obesity. Our results demonstrate that Mstn^−/− mice have an increase in insulin sensitivity and glucose uptake, and that the reduction in adipose tissue mass in Mstn^−/− mice is an indirect result of metabolic changes in skeletal muscle. These data suggest that increasing muscle mass by administration of myostatin antagonists may be a promising therapeutic target for treating patients with obesity or diabetes.