The failure of insulin to stimulate muscle glucose uptake and suppress hepatic glucose production represents two of the fundamental pathophysiologic lesions in type 2 diabetes mellitus (DM). Defining insulin action at the molecular level, therefore, provides the critical background against which to elucidate the mechanisms of insulin resistance that underlie type 2 DM, obesity and many other disorders. Over the past two decades substantial progress has been made in identifying many of the molecular mechanisms involved in insulin signaling. Much of this progress has been due to the use of homologous recombinant gene targeting. The present review examines the various insights that have been provided by studies of knockout mice strains. Taken together, the results present the possibility of a unifying hypothesis for type 2 DM, in which insulin resistance in the beta-cell synergizes with insulin resistance in the periphery to produce the two classic defects of this disease: relative hypoinsulinemia and peripheral insulin resistance.