Whether intramuscular triglyceride (IMTG) concentration or flux is more important in the progression to type 2 diabetes is controversial. Therefore, this study examined IMTG concentration, as well as its fractional synthesis rate (FSR), in obese people with normal glucose tolerance (NGT; n = 20) vs. obese people with prediabetes (PD; n = 19), at rest and during exercise. Insulin action and secretion were assessed using an intravenous glucose tolerance test. [U‐¹³C]palmitate was infused for 4 h before and throughout 1.5 h of treadmill walking at 50% VO_2max. IMTG concentration was measured by gas chromatograph/mass spectrometer, and FSR by gas chromatography–combustion isotope ratio mass spectrometer, from muscle biopsies taken immediately before and after exercise. Basal IMTG concentration was higher (43 ± 5.7 vs. 27 ± 3.9 mg/mg dry weight, P = 0.03) and FSR trended lower (0.23 ± 0.04 vs. 0.32 ± 0.05/h, P = 0.075), as did insulin action (S_i; 2.9 ± 0.43 vs. 3.3 ± 0.35 × 10⁻⁴/mU/ml, P = 0.07), in PD vs. NGT. IMTG concentration did not change significantly during exercise, but was no longer different in PD vs. NGT (45 ± 7.7 vs. 37 ± 5.8 mg/mg dry weight, P = 0.41). IMTG FSR suppressed during exercise in NGT (−81% to 0.06 ± 0.13/h, P = 0.02), but not PD (+4% to 0.24 ± 0.13%/h, P = 0.95). Palmitate oxidation was similar during rest (P = 0.92) and exercise (P = 0.94) between groups, but its source appeared different with more coming from muscle at rest and plasma during exercise in NGT, whereas the converse was true in PD. Altogether, higher basal IMTG concentration that is metabolically inflexible distinguishes obese people with PD from those with NGT.