We show that NF-kappaB and transcriptional targets are activated in liver by obesity and high-fat diet (HFD). We have matched this state of chronic, subacute 'inflammation' by low-level activation of NF-kappaB in the liver of transgenic mice, designated LIKK, by selectively expressing constitutively active IKK-b in hepatocytes. These mice exhibit a type 2 diabetes phenotype, characterized by hyperglycemia, profound hepatic insulin resistance, and moderate systemic insulin resistance, including effects in muscle. The hepatic production of proinflammatory cytokines, including IL-6, IL-1beta and TNF-alpha, was increased in LIKK mice to a similar extent as induced by HFD in in wild-type mice. Parallel increases were observed in cytokine signaling in liver and mucscle of LIKK mice. Insulin resistance was improved by systemic neutralization of IL-6 or salicylate inhibition of IKK-beta. Hepatic expression of the IkappaBalpha superrepressor (LISR) reversed the phenotype of both LIKK mice and wild-type mice fed an HFD. These findings indicate that lipid accumulation in the liver leads to subacute hepatic 'inflammation' through NF-kappaB activation and downstream cytokine production. This causes insulin resistance both locally in liver and systemically.