Intramyocellular accumulation of lipids is often associated with insulin resistance. Deficiency of comparative gene identification-58 (CGI-58) causes cytosolic deposition of triglyceride (TG)-rich lipid droplets in most cell types, including muscle due to defective TG hydrolysis. It was unclear, however, whether CGI-58 deficiency-induced lipid accumulation in muscle influences insulin sensitivity. Here we show that muscle-specific CGI-58 knockout mice relative to their controls have increased glucose tolerance and insulin sensitivity on a Western-type high-fat diet, despite TG accumulation in both heart and oxidative skeletal muscle and cholesterol deposition in heart. Although the intracardiomyocellular lipid deposition results in cardiac ventricular fibrosis and systolic dysfunction, muscle-specific CGI-58 knockout mice show increased glucose uptake in heart and soleus muscle, improved insulin signaling in insulin-sensitive tissues, and reduced plasma concentrations of glucose, insulin, and cholesterol. Hepatic contents of TG and cholesterol are also decreased in these animals. Cardiac steatosis is attributable, at least in part, to decreases in cardiac TG hydrolase activity and peroxisome proliferator-activated receptor-alpha/peroxisome proliferatoractivated receptor-gamma coactivator-1-dependent mitochondrial fatty acid oxidation. In conclusion, muscle CGI-58 deficiency causes cardiac dysfunction and fat deposition in oxidative muscles but induces a series of favorable metabolic changes in mice fed a high-fat diet.