The effect of pioglitazone (PIO) on plasma adiponectin concentration, endogenous glucose production (EGP), and hepatic fat content (HFC) was studied in 11 type 2 diabetic patients (age, 52 ± 2 yr; body mass index, 29.6 ± 1.1 kg/m²; HbA_1c, 7.8 ± 0.4%). HFC (magnetic resonance spectroscopy) and basal plasma adiponectin concentration were quantitated before and after PIO (45 mg/d) for 16 wk. Subjects received a 3-h euglycemic insulin (100 mU/m²·min) clamp combined with 3-[³H] glucose infusion to determine rates of EGP and tissue glucose disappearance (Rd) before and after PIO. PIO reduced fasting plasma glucose (10.0 ± 0.7 to 7.2 ± 0.6 mmol/liter, P < 0.01) and HbA_1c (7.8 ± 0.4 to 6.5 ± 0.3%, P < 0.01) despite increased body weight (83.0 ± 3.0 to 86.4 ± 3.0 kg, P < 0.01). PIO improved Rd (6.6 ± 0.6 vs. 5.2 ± 0.5 mg/kg·min, P < 0.005) and reduced EGP (0.23 ± 0.04 to 0.05 ± 0.02 mg/kg·min, P < 0.01) during the 3-h insulin clamp. After PIO treatment, HFC decreased from 21.3 ± 4.2 to 11.0 ± 2.4% (P < 0.01), and plasma adiponectin increased from 7 ± 1 to 21 ± 2 μg/ml (P < 0.0001). Plasma adiponectin concentration correlated negatively with HFC (r = −0.60, P < 0.05) and EGP (r = −0.80, P < 0.004) and positively with Rd before (r = 0.68, P < 0.02) pioglitazone treatment; similar correlations were observed between plasma adiponectin levels and HFC (r = −0.65, P < 0.03) and Rd after (r = 0.70, P = 0.01) pioglitazone treatment. EGP was almost completely suppressed after pioglitazone treatment; taken collectively, plasma adiponectin concentration, before and after pioglitazone treatment, still correlated negatively with EGP during the insulin clamp (r = −0.65, P < 0.001). In conclusion, PIO treatment in type 2 diabetes causes a 3-fold increase in plasma adiponectin concentration. The increase in plasma adiponectin is strongly associated with a decrease in hepatic fat content and improvements in hepatic and peripheral insulin sensitivity. The increase in plasma adiponectin concentration after thiazolidinedione therapy may play an important role in reversing the abnormality in hepatic fat mobilization and the hepatic/muscle insulin resistance in patients with type 2 diabetes.