Mice overexpressing acylCoA:diacylglycerol (DAG) acyltransferase 2 in the liver (Liv-DGAT2) have been shown to have normal hepatic insulin responsiveness despite severe hepatic steatosis and increased hepatic triglyceride, diacylglycerol, and ceramide content, demonstrating a dissociation between hepatic steatosis and hepatic insulin resistance. This led us to reevaluate the role of DAG in causing hepatic insulin resistance in this mouse model of severe hepatic steatosis. Using hyperinsulinemic-euglycemic clamps, we studied insulin action in Liv-DGAT2 mice and their wild-type (WT) littermate controls. Here, we show that Liv-DGAT2 mice manifest severe hepatic insulin resistance as reflected by decreased suppression of endogenous glucose production (0.8 ± 41.8 vs. 87.7 ± 34.3% in WT mice, P < 0.01) during the clamps. Hepatic insulin resistance could be attributed to an almost 12-fold increase in hepatic DAG content (P < 0.01) resulting in a 3.6-fold increase in protein kinase Cε (PKCε) activation (P < 0.01) and a subsequent 52% decrease in insulin-stimulated insulin receptor substrate 2 (IRS-2) tyrosine phosphorylation (P < 0.05), as well as a 64% decrease in fold increase pAkt/Akt ratio from basal conditions (P < 0.01). In contrast, hepatic insulin resistance in these mice was not associated with increased endoplasmic reticulum (ER) stress or inflammation. Importantly, hepatic insulin resistance in Liv-DGAT2 mice was independent of differences in body composition, energy expenditure, or food intake. In conclusion, these findings strengthen the link between hepatic steatosis and hepatic insulin resistance and support the hypothesis that DAG-induced PKCε activation plays a major role in nonalcoholic fatty liver disease (NAFLD)-associated hepatic insulin resistance.