Fatty acids are the primary fuel source for skeletal muscle during most of our daily activities, and impaired fatty acid oxidation (FAO) is associated with insulin resistance. We have developed a mouse model of impaired FAO by deleting carnitine palmitoyltransferase-1b specifically in skeletal muscle (Cpt1bm−/−). Cpt1bm−/− mice have increased glucose utilization and are resistant to diet-induced obesity. Here, we show that inhibition of mitochondrial FAO induces FGF21 expression specifically in skeletal muscle. The induction of FGF21 in Cpt1b-deficient muscle is dependent on AMPK and Akt1 signaling but independent of the stress signaling pathways. FGF21 appears to act in a paracrine manner to increase glucose uptake under low insulin conditions, but it does not contribute to the resistance to diet-induced obesity.