Suppression of lipid oxidation (L_ox) by insulin is impaired in obesity and type 2 diabetes mellitus (T2DM). Here we tested whether high L_ox represents a primary or acquired characteristic in the pathogenesis of T2DM. Hood-indirect calorimetry was performed under postabsorptive conditions and during a two-step hyperinsulinemic euglycemic clamp (insulin infusion rates in mU·m⁻²·min⁻¹: 40 low and 400 high) in 465 Pima Indians: 317 with normal glucose tolerance (NGT), 117 with impaired glucose tolerance (IGT), and 31 with T2DM. The predictive effect of net lipid oxidation (L_ox) on development of T2DM was assessed in 296 subjects (51 of whom developed T2DM), whereas the predictive effect of L_ox on followup changes in insulin-mediated glucose disposal (M) and acute insulin response (AIR) was studied in 190 subjects with NGT at baseline. Cross-sectionally, after adjustment for age, sex, body fat (BF), and M low, L_ox low was increased in T2DM compared with NGT and IGT subjects (P < 0.05). Prospectively, after adjustment for followup duration, age, sex, BF, M, and AIR, increased clamp L_ox predicted T2DM [hazard rate ratios (95% CI): L_ox low, 1.5 (1.1, 2.0), P < 0.01; L_ox high, 1.3 (1.0, 1.8), P = 0.05]. High L_ox low at baseline was also associated with subsequent worsening of M low (P = 0.04). These data indicate that the inability of insulin to suppress L_ox may represent an early risk marker for insulin resistance and T2DM that is independent of adiposity, acute insulin secretion, and insulin action on glucose uptake.