Insulin resistance and dysregulation of free fatty acid (FFA) metabolism are core defects in type 2 diabetic (T2DM) and obese normal glucose tolerant (NGT) individuals. Impaired muscle mitochondrial function (reduced ATP synthesis) also has been described in insulin-resistant T2DM and obese subjects. We examined whether reduction in plasma FFA concentration with acipimox improved ATP synthesis rate and altered reactive oxygen species (ROS) production. Eleven NGT obese and 11 T2DM subjects received 1) OGTT, 2) euglycemic insulin clamp with muscle biopsy, and 3) ¹H-magnetic resonance spectroscopy of tibialis anterior muscle before and after acipimox (250 mg every 6 h for 12 days). ATP synthesis rate and ROS generation were measured in mitochondria isolated from muscle tissue ex vivo with chemoluminescence and fluorescence techniques, respectively. Acipimox 1) markedly reduced the fasting plasma FFA concentration and enhanced suppression of plasma FFA during oral glucose tolerance tests and insulin clamp in obese NGT and T2DM subjects and 2) enhanced insulin-mediated muscle glucose disposal and suppression of hepatic glucose production. The improvement in insulin sensitivity was closely correlated with the decrease in plasma FFA in obese NGT (r = 0.81) and T2DM (r = 0.76) subjects (both P < 0.001). Mitochondrial ATP synthesis rate increased by >50% in both obese NGT and T2DM subjects and was strongly correlated with the decrease in plasma FFA and increase in insulin-mediated glucose disposal (both r > 0.70, P < 0.001). Production of ROS did not change after acipimox. Reduction in plasma FFA in obese NGT and T2DM individuals improves mitochondrial ATP synthesis rate, indicating that the mitochondrial defect in insulin-resistant individuals is, at least in part, reversible.