A dynamic cycle of O-linked N-acetylglucosamine (O-GlcNAc) addition and removal acts on nuclear pore proteins, transcription factors, and kinases to modulate cellular signaling cascades. Two highly conserved enzymes (O-GlcNAc transferase and O-GlcNAcase) catalyze the final steps in this nutrient-driven "hexosamine-signaling pathway." A single nucleotide polymorphism in the human O-GlcNAcase gene is linked to type 2 diabetes. Here, we show that Caenorhabditis elegans oga-1 encodes an active O-GlcNAcase. We also describe a knockout allele, oga-1(ok1207), that is viable and fertile yet accumulates O-GlcNAc on nuclear pores and other cellular proteins. Interfering with O-GlcNAc cycling with either oga-1(ok1207) or the O-GlcNAc transferase-null ogt-1(ok430) altered Ser- and Thr-phosphoprotein profiles and increased glycogen synthase kinase 3beta (GSK-3beta) levels. Both the oga-1(ok1207) and ogt-1(ok430) strains showed elevated stores of glycogen and trehalose, and decreased lipid storage. These striking metabolic changes prompted us to examine the insulin-like signaling pathway controlling nutrient storage, longevity, and dauer formation in the C. elegans O-GlcNAc cycling mutants. Indeed, we found that the oga-1(ok1207) knockout augmented dauer formation induced by a temperature sensitive insulin-like receptor (daf-2) mutant under conditions in which the ogt-1(ok430)-null diminished dauer formation. Our findings suggest that the enzymes of O-GlcNAc cycling "fine-tune" insulin-like signaling in response to nutrient flux. The knockout of O-GlcNAcase (oga-1) in C. elegans mimics many of the metabolic and signaling changes associated with human insulin resistance and provides a genetically amenable model of non-insulin-dependent diabetes.