Aims/hypothesis Insulin effects reportedly involve reactive oxygen species (ROS) and oxidative stress in vitro, but skeletal muscle oxidative stress is an emerging negative regulator of insulin action following high-fat feeding. NEFA may enhance oxidative stress and insulin resistance. We investigated the acute impact of insulin with or without NEFA elevation on muscle ROS generation and insulin signalling, and the potential association with altered muscle mitochondrial function. Methods We used hyperinsulinaemic-euglycaemic clamping, 150 min, without or with lipid infusion to modulate plasma NEFA concentration in lean rats. Results Insulin and glucose (Ins) infusion selectively enhanced xanthine oxidase-dependent muscle ROS generation. Ins with lipid infusion (Ins+NEFA) lowered whole-body glucose disposal and muscle insulin signalling, and these effects were associated with high muscle mitochondrial ROS generation and activation of the proinflammatory nuclear factor-κB inhibitor (IκB)-nuclear factor-κB (NFκB) pathway. Antioxidant infusion prevented NEFA-induced systemic insulin resistance and changes in muscle mitochondrial ROS generation, IκB-NFκB pathway and insulin signalling. Changes in insulin sensitivity and signalling were independent of changes in mitochondrial enzyme activity and ATP production, which, in turn, were not impaired by changes in ROS generation under any condition. Conclusions/interpretation Acute muscle insulin effects include enhanced ROS generation through xanthine oxidase. Additional NEFA elevation enhances mitochondrial ROS generation, activates IκB-NFκB and reduces insulin signalling. These alterations are not associated with acute reductions in mitochondrial enzyme activity and ATP production, and are reversed by antioxidant infusion. Thus, NEFA acutely cause systemic and muscle insulin resistance by enhancing muscle oxidative stress through mitochondrial ROS generation and IκB-NFκB activation.