To date, the only known role of the spliced form of X-box-binding protein-1 (XBP-1s) in metabolic processes has been its ability to act as a transcription factor that regulates the expression of genes that increase the endoplasmic reticulum (ER) folding capacity, thereby improving insulin sensitivity. Here we show that XBP-1s interacts with the Forkhead box O1 (FoxO1) transcription factor and directs it toward proteasome-mediated degradation. Given this new insight, we tested modest hepatic overexpression of XBP-1s in vivo in mouse models of insulin deficiency or insulin resistance and found it improved serum glucose concentrations, even without improving insulin signaling or ER folding capacity. The notion that XBP-1s can act independently of its role in the ER stress response is further supported by our finding that in the severely insulin resistant ob/ob mouse strain a DNA-binding-defective mutant of XBP-1s, which does not have the ability to increase ER folding capacity, is still capable of reducing serum glucose concentrations and increasing glucose tolerance. Our results thus provide the first evidence to our knowledge that XBP-1s, through its interaction with FoxO1, can bypass hepatic insulin resistance independent of its effects on ER folding capacity, suggesting a new therapeutic approach for the treatment of type 2 diabetes.