In the liver, insulin controls both lipid and glucose metabolism through its cell surface receptor and intracellular mediators such as phosphatidylinositol 3-kinase and serine-threonine kinase AKT. The insulin signaling pathway is further modulated by protein tyrosine phosphatase or lipid phosphatase. Here, we investigated the function of phosphatase and tension homologue deleted on chromosome 10 (PTEN), a negative regulator of the phosphatidylinositol 3-kinase/AKT pathway, by targeted deletion of Pten in murine liver. Deletion of Pten in the liver resulted in increased fatty acid synthesis, accompanied by hepatomegaly and fatty liver phenotype. Interestingly, Pten liver-specific deletion causes enhanced liver insulin action with improved systemic glucose tolerance. Thus, deletion of Pten in the liver may provide a valuable model that permits the study of the metabolic actions of insulin signaling in the liver, and PTEN may be a promising target for therapeutic intervention for type 2 diabetes.