Diet-induced obesity is a major contributing factor to the progression of hepatic insulin resistance. Increased free fatty acids in liver enhances endoplasmic reticulum (ER) stress and production of reactive oxygen species (ROS), both are directly responsible for dysregulation of hepatic insulin signaling. BI-1, a recently studied ER stress regulator, was examined to investigate its association with ER stress and ROS in insulin resistance models. To induce obesity and insulin resistance, BI-1 wild type and BI-1 knock-out mice were fed a high-fat diet for 8 weeks. The BI-1 knock-out mice had hyperglycemia, was associated with impaired glucose and insulin tolerance under high-fat diet conditions. Increased activity of NADPH-dependent CYP reductase-associated cytochrome p450 2E1 (CYP2E1) and exacerbation of ER stress in the livers of BI-1 knock-out mice was also observed. Conversely, stable expression of BI-1 in HepG2 hepatocytes was shown to reduce palmitate-induced ER stress and CYP2E1-dependent ROS production, resulting in the preservation of intact insulin signaling. Stable expression of CYP2E1 led to increased ROS production and dysregulation of insulin signaling in hepatic cells, mimicking palmitate-mediated hepatic insulin resistance. We propose that BI-1 protects against obesity-induced hepatic insulin resistance by regulating CYP2E1 activity and ROS production.