Hypersecretion of glucagon contributes to abnormally increased hepatic glucose output in type 2 diabetes. Somatostatin (SST) inhibits murine glucagon secretion from isolated pancreatic islets via somatostatin receptor subtype-2 (sst2). Here, we characterize the role of sst2 in controlling glucose homeostasis in mice with diet-induced obesity. Sst2-deficient (sst2^−/−) and control mice were fed high-fat diet for 14 wk, and the parameters of glucose homeostasis were monitored. Hepatic glycogen and lipid contents were quantified enzymatically and visualized histomorphologically. Enzymes regulating glycogen and lipid synthesis and breakdown were measured by real-time PCR and/or Western blot. Gluconeogenesis and glycogenolysis were determined from isolated primary hepatocytes and glucagon or insulin secretion from isolated pancreatic islets. Nonfasting glucose, glucagon, and fasting nonesterified fatty acids of sst2^−/− mice were increased. Inhibition of glucagon secretion from sst2-deficient pancreatic islets by glucose or somatostatin was impaired. Insulin less potently reduced blood glucose concentration in sst2-deficient mice as compared with wild-type mice. Sst2-deficient mice had decreased nonfasting hepatic glycogen and lipid content. The activity/expression of enzymes controlling hepatic glycogen synthesis of sst2^−/− mice was decreased, whereas enzymes facilitating glycogenolysis and lipolysis were increased. Somatostatin and an sst2-selective agonist decreased glucagon-induced glycogenolysis, without influencing de novo glucose production using cultured primary hepatocytes. This study demonstrates that ablation of sst2 leads to hyperglucagonemia. Increased glucagon concentration is associated with impaired glucose control in sst2^−/− mice, resulting from decreased hepatic glucose storage, increased glycogen breakdown, and reduced lipid accumulation. Sst2 may constitute a therapeutic target to lower hyperglucagonemia in type 2 diabetes.