The orphan receptor small heterodimer partner (SHP; NROB2) is a transcriptional repressor that inhibits nuclear receptor signaling in diverse metabolic pathways. Here, we report that SHP(-/-) mice exhibited hypoinsulinemia with age, which was associated with increased peripheral insulin sensitivity and increased response of isolated islets to glucose stimulation, yet maintain normal levels of blood glucose. Deficiency in SHP function resulted in up-regulation of glucose transporter 4 mRNA and glucose uptake in muscles, and overexpression of SHP in C2C12 cells inhibited both basal and peroxisomal proliferator-activated receptor gamma (PPARgamma) coactivator-1alpha-stimulated glucose transporter 4 expression and glucose uptake. SHP(-/-) hepatocytes showed markedly decreased basal glucose production in cultures, and SHP(-/-) livers had increased glycogen stores and were more sensitive to insulin inhibition of glucose output, which were concomitant with decreased expression for PPARgamma1, fatty acid translocase, glucose-6-phosphatase, and phosphoenol/pyruvate carboxykinase, and increased mRNAs for glucokinase and pyruvate kinase. In white fat, SHP deficiency resulted in up-regulation of genes involved in insulin sensitizing, including PPARgamma2 and adiponectin. We show that, at the transcriptional level, SHP directly represses adiponectin promoter activity by PPARgamma/liver receptor homolog-1. The results suggest that the increases in insulin sensitivity through multiple signaling pathways in muscle, liver, and fat, with an increase in islet secretory function, represent the complex mechanism whereby SHP deficiency leads to improvement in insulin sensitivity, secretion, and diabetes.