This study was undertaken to ascertain whether enhanced oxidation of intracellular lipids could explain the impaired carbohydrate metabolism of diabetes. Pieces of diaphragms removed from diabetic (60--75 mg/kg streptozotocin i.v.) and control rats were incubated for 1 h with palmitate-1-14C. Tissue lipids from one piece were separated on silicic acid columns and the amount and specific activity of free fatty acids (FFA), triglycerides (TG) and phospholipids (PL) were measured. 14CO2 production was also assessed in some experiments. The other pieces of tissue were incubated for a subsequent hour (without radioactivity) at which time measurements of tissue lipid content and specific activity and 14CO2 production were again performed. FFA incorporation into CO2, tissue TG and PL was normal. TG content was moderately and PL content was slightly reduced in diabetic tissue. Changes in diaphragm TG and PL content and specific activity during the 2nd h of incubation strongly suggested that most of the 14CO2 produced during this period was derived from TG. Approximately 25% of tissue TG in both control and diabetic muscle was oxidized to CO2 during the 2nd h of incubation. In diaphragms from diabetic rats, (+)-octanoylcarnitine (an inhibitor of FFA oxidation) decreased TG oxidation considerably but had no effect on the impaired glucose uptake. Thus, these data do not support the hypothesis that the glucose-fatty acid cycle (utilizing either extra- or intracellular lipids) may account for the altered carbohydrate metabolism of diabetic muscle.