OBJECTIVE: Type 2 diabetes results from a combination of insulin resistance and impaired insulin secretion. To directly address the effects of hepatic insulin resistance in adult animals, we developed an inducible liver-specific insulin receptor knockout mouse (iLIRKO). RESEARCH DESIGN AND METHODS: Using this approach, we were able to induce variable insulin receptor (IR) deficiency in a tissue-specific manner (liver mosaicism). RESULTS: iLIRKO mice presented progressive hepatic and extrahepatic insulin resistance without liver dysfunction. Initially, iLIRKO mice displayed hyperinsulinemia and increased beta-cell mass, the extent of which was proportional to the deletion of hepatic IR. Our studies of iLIRKO suggest a cause-and-effect relationship between progressive insulin resistance and the fold increase of plasma insulin levels and beta-cell mass. Ultimately, the beta-cells failed to secrete sufficient insulin, leading to uncontrolled diabetes. We observed that hepatic IGF-1 expression was enhanced in iLIRKO mice, resulting in an increase of circulating IGF-1. Concurrently, the IR-A isoform was upregulated in hyperplastic beta-cells of iLIRKO mice and IGF-1-induced proliferation was higher than in the controls. In mouse beta-cell lines, IR-A, but not IR-B, conferred a proliferative capacity in response to insulin or IGF-1, providing a potential explanation for the beta-cell hyperplasia induced by liver insulin resistance in iLIRKO mice. CONCLUSIONS: Our studies of iLIRKO mice suggest a liver-pancreas endocrine axis in which IGF-1 functions as a liver-derived growth factor to promote compensatory pancreatic islet hyperplasia through IR-A.