Suppressor of cytokine signaling 1 (SOCS1) is an intracellular inhibitor of cytokine, growth factor, and hormone signaling. Socs1-/- mice die before weaning from a multiorgan inflammatory disease. Neonatal Socs1-/- mice display severe hypoglycemia and hypoinsulinemia. Concurrent interferon gamma gene deletion (Ifng-/-) prevented inflammation and corrected the hypoglycemia. In hyperinsulinemic clamp studies, however, Socs1-/- Ifng-/- mice had enhanced hepatic insulin sensitivity demonstrated by greater suppression of endogenous glucose production compared with controls with no difference in glucose disposal. Socs1-/- Ifng-/- mice had elevated liver insulin receptor substrate 2 expression (IRS-2) and IRS-2 tyrosine phosphorylation. This was associated with lower phosphoenolpyruvate carboxykinase mRNA expression. These effects were not associated with elevated hepatic AMP-activated protein kinase activity. Hepatic insulin sensitivity and IRS-2 levels play central roles in the pathogenesis of type 2 diabetes. Socs1 deficiency increases IRS-2 expression and enhances hepatic insulin sensitivity in vivo indicating that inhibition of SOCS1 may be a logical strategy in type 2 diabetes.