AIMS/HYPOTHESIS: Previous findings in rodents used as a model of diabetes suggest that insulin activation of atypical protein kinase C (aPKC) is impaired in muscle, but, unexpectedly, conserved in liver, despite impaired hepatic protein kinase B (PKB/Akt) activation. Moreover, aPKC at least partly regulates two major transactivators: (1) hepatic sterol receptor binding protein-1c (SREBP-1c), which controls lipid synthesis; and (2) nuclear factor kappa B (NFkappaB), which promotes inflammation and systemic insulin resistance. METHODS: In Goto-Kakizaki rats used as a model of type 2 diabetes, we examined: (1) whether differences in hepatic aPKC and PKB activation reflect differences in activation of IRS-1- and IRS-2-dependent phosphatidylinositol 3-kinase (PI3K); (2) whether hepatic SREBP-1c and NFkappaB are excessively activated by aPKC; and (3) metabolic consequences of excessive activation of hepatic aPKC, SREBP-1c and NFkappaB. RESULTS: In liver, as well as in muscle, IRS-2/PI3K activation by insulin was intact, whereas IRS-1/PI3K activation by insulin was impaired. Moreover, hepatic IRS-2 is known to control hepatic aPKC during insulin activation. Against this background, selective inhibition of hepatic aPKC by adenoviral-mediated expression of mRNA encoding kinase-inactive aPKC or short hairpin RNA targeting Irs2 mRNA and partially depleting hepatic IRS-2 diminished hepatic SREBP-1c production and NFkappaB activities, concomitantly improving serum lipids and insulin signalling in muscle and liver. Similar improvements in SREBP-1c, NFkappaB and insulin signalling were seen in ob/ob mice following inhibition of hepatic aPKC. CONCLUSIONS/INTERPRETATION: In diabetic rodent liver, diminished PKB activation may largely reflect impaired IRS-1/PI3K activation, while conserved aPKC activation reflects retained IRS-2/PI3K activity. Hepatic aPKC may also contribute importantly to excessive SREPB-1c and NFkappaB activities. Excessive hepatic aPKC-dependent activation of SREBP-1c and NFkappaB may contribute importantly to hyperlipidaemia and systemic insulin resistance.