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To determine the effect of nonesterified fatty acids (NEFA) on glucagon action, glucagon was infused intraportally (1.65 ng.min(-1).kg(-1)) for 3 h into 18-h-fasted, pancreatic-clamped conscious dogs in the presence [NEFA + glucagon (GGN)] or absence (GGN) of peripheral Intralipid plus heparin infusion. Additionally, hyperglycemic (HG), hyperglycemic-hyperlipidemic (NEFA + HG), and glycerol plus glucagon (GLYC + GGN) controls were studied. Arterial plasma glucagon concentrations rose equally in GGN, NEFA + GGN, and GLYC + GGN but remained basal in hyperglycemic controls. Peripheral infusions of Intralipid and heparin increased arterial plasma NEFA concentrations equally in NEFA + GGN and NEFA + HG and did not change in other protocols. After 15 min, glucagon infusion resulted in a rapid, brief increase in net hepatic glycogenolysis (NHGLY, mg.min(-1).kg(-1)) of approximately 6.0 in GGN and GLYC + GGN but only increased by 3.8 +/- 1.3 in NEFA + GGN. Thus increases in NHGLY, and consequently net hepatic glucose output (NHGO), were blunted by 40%, with no difference between the groups in the last 2.5 h of the study. NHGO and NHGLY did not significantly change in HG and NEFA + HG. Net hepatic gluconeogenic flux did not change in GGN, GLYC + GGN, or HG. However, Intralipid and heparin infusion resulted in similar increases in net hepatic gluconeogenic flux in NEFA + GGN and NEFA + HG. Thus elevated NEFA limit the initial increase in glucagon-stimulated HGO by blunting glycogenolysis, without having any effect on the gluconeogenic or glycogenolytic contributions or NHGO thereafter.