Free fatty acids (FFAs) have been implicated in the pathogenesis of insulin resistance. Reducing plasma FFA concentration in obese and type 2 diabetic (T2DM) subjects improves insulin sensitivity. However, the molecular mechanism by which FFA reduction improves insulin sensitivity in human subjects is not fully understood. In the present study, we tested the hypothesis that pharmacological FFA reduction enhances insulin action by reducing local (muscle) inflammation, leading to improved insulin signalling. Insulin-stimulated total glucose disposal (TGD), plasma FFA species, muscle insulin signalling, IBα protein, c-Jun phosphorylation, inflammatory gene (toll-like receptor 4 and monocyte chemotactic protein 1) expression, and ceramide and diacylglycerol (DAG) content were measured in muscle from a group of obese and T2DM subjects before and after administration of the antilipolytic drug acipimox for 7 days, and the results were compared to lean individuals. We found that obese and T2DM subjects had elevated saturated and unsaturated FFAs in plasma, and acipimox reduced all FFA species. Acipimox-induced reductions in plasma FFAs improved TGD and insulin signalling in obese and T2DM subjects. Acipimox increased IBα protein (an indication of decreased IB kinase-nuclear factor B signalling) in both obese and T2DM subjects, but did not affect c-Jun phosphorylation in any group. Acipimox also decreased inflammatory gene expression, although this reduction only occurred in T2DM subjects. Ceramide and DAG content did not change. To summarize, pharmacological FFA reduction improves insulin signalling in muscle from insulin-resistant subjects. This beneficial effect on insulin action could be related to a decrease in local inflammation. Notably, the improvements in insulin action were more pronounced in T2DM, indicating that these subjects are more susceptible to the toxic effect of FFAs.