Insulin resistance in type 2 diabetes is partly due to impaired glucose transport in skeletal muscle. Atypical protein kinase C (aPKC) and protein kinase B (PKB), operating downstream of phosphatidylinositol (PI) 3-kinase and its lipid product, PI-3,4,5-(PO4)3 (PIP3), apparently mediate insulin effects on glucose transport. We examined these signaling factors during hyperinsulinemic-euglycemic clamp studies in nondiabetic subjects, subjects with impaired glucose tolerance (IGT), and type 2 diabetic subjects. In nondiabetic control subjects, insulin provoked twofold increases in muscle aPKC activity. In both IGT and diabetes, aPKC activation was markedly (70–80%) diminished, most likely reflecting impaired activation of insulin receptor substrate (IRS)-1-dependent PI 3-kinase and decreased ability of PIP3 to directly activate aPKCs; additionally, muscle PKC-ζ levels were diminished by 40%. PKB activation was diminished in patients with IGT but not significantly in diabetic patients. The insulin sensitizer rosiglitazone improved insulin-stimulated IRS-1-dependent PI 3-kinase and aPKC activation, as well as glucose disposal rates. Bicycle exercise, which activates aPKCs and stimulates glucose transport independently of PI 3-kinase, activated aPKCs comparably to insulin in nondiabetic subjects and better than insulin in diabetic patients. Defective aPKC activation contributes to skeletal muscle insulin resistance in IGT and type 2 diabetes, rosiglitazone improves insulin-stimulated aPKC activation, and exercise directly activates aPKCs in diabetic muscle.