AMP-activated protein kinase (AMPK) is a major therapeutic target for the treatment of diabetes. We investigated the effect of a short-term overexpression of AMPK specifically in the liver by adenovirus-mediated transfer of a gene encoding a constitutively active form of AMPKα2 (AMPKα2-CA). Hepatic AMPKα2-CA expression significantly decreased blood glucose levels and gluconeogenic gene expression. Hepatic expression of AMPKα2-CA in streptozotocin-induced and ob/ob diabetic mice abolished hyperglycemia and decreased gluconeogenic gene expression. In normal mouse liver, AMPKα2-CA considerably decreased the refeeding-induced transcriptional activation of genes encoding proteins involved in glycolysis and lipogenesis and their upstream regulators, SREBP-1 (sterol regulatory element–binding protein-1) and ChREBP (carbohydrate response element–binding protein). This resulted in decreases in hepatic glycogen synthesis and circulating lipid levels. Surprisingly, despite the inhibition of hepatic lipogenesis, expression of AMPKα2-CA led to fatty liver due to the accumulation of lipids released from adipose tissue. The relative scarcity of glucose due to AMPKα2-CA expression led to an increase in hepatic fatty acid oxidation and ketone bodies production as an alternative source of energy for peripheral tissues. Thus, short-term AMPK activation in the liver reduces blood glucose levels and results in a switch from glucose to fatty acid utilization to supply energy needs.