Palmitic acid hydroxystearic acids (PAHSAs) are endogenous lipids with anti-diabetic and anti-inflammatory effects. PAHSA levels are reduced in serum and adipose tissue of insulin-resistant people and high-fat diet (HFD)-fed mice. Here, we investigated whether chronic PAHSA treatment enhances insulin sensitivity and which receptors mediate PAHSA effects. Chronic PAHSA administration in chow- and HFD-fed mice raises serum and tissue PAHSA levels ∼1.4- to 3-fold. This improves insulin sensitivity and glucose tolerance without altering body weight. PAHSA administration in chow-fed, but not HFD-fed, mice augments insulin and glucagon-like peptide (GLP-1) secretion. PAHSAs are selective agonists for GPR40, increasing Ca+2 flux, but not intracellular cyclic AMP. Blocking GPR40 reverses improvements in glucose tolerance and insulin sensitivity in PAHSA-treated chow- and HFD-fed mice and directly inhibits PAHSA augmentation of glucose-stimulated insulin secretion in human islets. In contrast, GLP-1 receptor blockade in PAHSA-treated chow-fed mice reduces PAHSA effects on glucose tolerance, but not on insulin sensitivity. Thus, PAHSAs activate GPR40, which is involved in their beneficial metabolic effects.