Elevated free fatty acids (FFA) are implicated with insulin resistance at the cellular level. However, the contribution of whole body lipid kinetics to FFA-induced insulin resistance is not well understood, and the effect of exercise and diet on this metabolic defect is not known. We investigated the effect of 12 wk of exercise training with and without caloric restriction on FFA turnover and oxidation (FFA(ox)) during acute FFA-induced insulin resistance. Sixteen obese subjects with impaired glucose tolerance were randomized to either a hypocaloric (n = 8; -598 +/- 125 kcal/day, 66 +/- 1 yr, 32.8 +/- 1.8 kg/m(2)) or a eucaloric (n = 8; 67 +/- 2 yr, 35.3 +/- 2.1 kg/m(2)) diet and aerobic exercise (1 h/day at 65% of maximal oxygen uptake) regimen. Lipid kinetics ([1-(14)C]palmitate) were assessed throughout a 7-h, 40 mU x m(-2) x min(-1) hyperinsulinemic euglycemic clamp, during which insulin resistance was induced in the last 5 h by a sustained elevation in plasma FFA (intralipid/heparin infusion). Despite greater weight loss in the hypocaloric group (-7.7 +/- 0.5 vs. -3.3 +/- 0.7%, P <0.001), FFA-induced peripheral insulin resistance was improved equally in both groups. However, circulating FFA concentrations (2,123 +/- 261 vs. 1,764 +/- 194 micromol/l, P <0.05) and FFA turnover (3.20 +/- 0.58 vs. 2.19 +/- 0.58 micromol x kg FFM(-1) x min(-1), P <0.01) during hyperlipemia were suppressed only in the hypocaloric group. In contrast, whole body FFA(ox) was improved in both groups at rest and during hyperlipemia. These changes were driven by increases in intracellular lipid-derived FFA(ox) (12.3 +/- 7.7 and 14.7 +/- 7.8%, P <0.05). We conclude that the exercise-induced improvement in FFA-induced insulin resistance is independent of the magnitude of weight loss and FFA turnover, yet it is linked to increased intracellular FFA utilization.