Nonalcoholic fatty liver disease is strongly associated with hepatic insulin resistance (HIR); however, the key lipid species and molecular mechanisms linking these conditions are widely debated. We developed a subcellular fractionation method to quantify diacylglycerol (DAG) stereoisomers and ceramides in the endoplasmic reticulum (ER), mitochondria, plasma membrane (PM), lipid droplets, and cytosol. Acute knockdown (KD) of diacylglycerol acyltransferase-2 in liver induced HIR in rats. This was due to PM sn-1,2-DAG accumulation, which promoted PKCϵ activation and insulin receptor kinase (IRK)-T1160 phosphorylation, resulting in decreased IRK-Y1162 phosphorylation. Liver PM sn-1,2-DAG content and IRK-T1160 phosphorylation were also higher in humans with HIR. In rats, liver-specific PKCϵ KD ameliorated high-fat diet-induced HIR by lowering IRK-T1160 phosphorylation, while liver-specific overexpression of constitutively active PKCϵ-induced HIR by promoting IRK-T1160 phosphorylation. These data identify PM sn-1,2-DAGs as the key pool of lipids that activate PKCϵ and that hepatic PKCϵ is both necessary and sufficient in mediating HIR.