To examine the impact of diabetes and its treatment on plasma free-fatty acid (FFA) and oxidative fuel metabolism during hypoglycemia, we combined indirect calorimetry with [3-3H]glucose during a 4-h low-dose insulin infusion (plasma insulin approximately 2-fold above basal) in six poorly controlled and nine well-controlled insulin-dependent diabetes mellitus (IDDM) patients and in six healthy subjects. Diabetic subjects received insulin overnight to maintain euglycemia before study. Although free-insulin levels and counterregulatory hormone responses were similar, the plasma glucose fall was more pronounced in well-controlled diabetic subjects. In well-controlled diabetic and healthy subjects, the small increment in insulin rapidly suppressed plasma FFA and fat oxidation by approximately 50% and stimulated carbohydrate oxidation by approximately 80%. In contrast, plasma FFA levels did not fall in poorly controlled diabetic subjects, and glucose oxidation was not stimulated. To determine whether this resistance to the antilipolytic effect of insulin occurs in the absence of hypoglycemic counterregulation, we used a sequential low-dose euglycemic insulin clamp (0.2, 0.3, and 0.5 mU.kg-1.min-1). In healthy subjects, plasma FFA was nearly maximally suppressed at the lowest insulin dose. In contrast, plasma FFA remained persistently elevated in poorly controlled diabetic subjects at each insulin dose. However, the insulin dose-response curve for suppression of plasma FFA was near normal in well-controlled subjects. We conclude that poorly controlled IDDM diabetic patients are resistant to the antilipolytic effects of insulin and show impaired stimulation of glucose oxidation during insulin-induced hypoglycemia. Amelioration of these defects in well-controlled patients may be another factor contributing to the higher risk of hypoglycemia during intensified insulin therapy.