Defects in insulin signalling are among the most common and earliest defects that predispose an individual to the development of type 2 diabetes(1-3). MicroRNAs have been identified as a new class of regulatory molecules that influence many biological functions, including metabolism(4,5). However, the direct regulation of insulin sensitivity by microRNAs in vivo has not been demonstrated. Here we show that the expression of microRNAs 103 and 107 (miR-103/107) is upregulated in obese mice. Silencing of miR-103/107 leads to improved glucose homeostasis and insulin sensitivity. In contrast, gain of miR-103/107 function in either liver or fat is sufficient to induce impaired glucose homeostasis. We identify caveolin-1, a critical regulator of the insulin receptor, as a direct target gene of miR-103/107. We demonstrate that caveolin-1 is upregulated upon miR-103/107 inactivation in adipocytes and that this is concomitant with stabilization of the insulin receptor, enhanced insulin signalling, decreased adipocyte size and enhanced insulin-stimulated glucose uptake. These findings demonstrate the central importance of miR-103/107 to insulin sensitivity and identify a new target for the treatment of type 2 diabetes and obesity.