Although germ‐line deletion of c‐Jun NH₂‐terminal kinase (JNK) improves overall insulin sensitivity in mice, those studies could not reveal the underlying molecular mechanism and the tissue site(s) in which reduced JNK activity elicits the observed phenotype. Given its importance in nonesterified fatty acids (NEFA) and glucose utilization, we hypothesized that the insulin‐sensitive phenotype associated with Jnk deletion originates from loss of JNK function in skeletal muscle. Short hairpin RNA (shRNA)–mediated gene silencing was used to identify the functions of JNK subtypes in regulating energy metabolism and metabolic responses to elevated concentrations of NEFA in C2C12 myotubes, a cellular model of skeletal muscle. We show for the first time that cellular JNK2‐ and JNK1/JNK2‐deficiency divert glucose from oxidation to glycogenesis due to increased glycogen synthase (GS) activity and induction of Pdk4. We further show that JNK2‐ and JNK1/JNK2‐deficiency profoundly increase cellular NEFA oxidation, and their conversion to phospholipids and triglyceride. The increased NEFA utilization was coupled to increased expressions of selective NEFA handling genes including Cd36, Acsl4, and Chka, and enhanced palmitic acid (PA)‐dependent suppression of acetyl‐CoA carboxylase (Acc). In JNK‐intact cells, PA inhibited insulin signaling and glycogenesis. Although silencing Jnk1 and/or Jnk2 prevented PA‐induced inhibition of insulin signaling, it did not completely block decreased insulin‐mediated glycogenesis, thus indicating JNK‐independent pathways in the suppression of glycogenesis by PA. Muscle‐specific inhibition of JNK2 (or total JNK) improves the capacity of NEFA utilization and glycogenesis, and is a potential therapeutic target for improving systemic insulin sensitivity in type 2 diabetes (T2D).