A major action of insulin is to regulate the transcription rate of specific genes. The expression of these genes is dramatically altered in type 2 diabetes. For example, the expression of two hepatic genes, glucose-6-phosphatase and PEPCK, is normally inhibited by insulin, but in type 2 diabetes, their expression is insensitive to insulin. An agent that mimics the effect of insulin on the expression of these genes would reduce gluconeogenesis and hepatic glucose output, even in the presence of insulin resistance. The repressive actions of insulin on these genes are dependent on phosphatidylinositol (PI) 3-kinase. However, the molecules that lie between this lipid kinase and the two gene promoters are unknown. Glycogen synthase kinase-3 (GSK-3) is inhibited following activation of PI 3-kinase and protein kinase B. In hepatoma cells, we find that selectively reducing GSK-3 activity strongly reduces the expression of both gluconeogenic genes. The effect is at the level of transcription and is observed with induced or basal gene expression. In addition, GSK-3 inhibition does not result in the subsequent activation of protein kinase B or inhibition of the transcription factor FKHR, which are candidate regulatory molecules for these promoters. Thus, GSK-3 activity is required for basal activity of each promoter. Inhibitors of GSK-3 should therefore reduce hepatic glucose output, as well as increase the synthesis of glycogen from l-glucose. These findings indicate that GSK-3 inhibitors may have greater therapeutic potential for lowering blood glucose levels and treating type 2 diabetes than previously realized.