Dyslipidemic patients with diabetes mellitus, including metabolic syndrome, are at increased risk of coronary heart disease. It has been reported that ezetimibe, a cholesterol absorption inhibitor, improves metabolic diseases in mice and humans. However, the underlying mechanism has been unclear. Here we explored the effects of ezetimibe on lipid and glucose homeostasis. Male KK-A(y) mice were fed a high-fat diet, which is the mouse model of metabolic syndrome, with or without ezetimibe for 14 weeks. Ezetimibe improved dyslipidemia, steatosis, and insulin resistance. Ezetimibe decreased hepatic oxysterols, which are endogenous agonists of liver X receptor (LXR), to decrease hepatic lipogenic gene expressions, especially in stearoyl-CoA desaturase-1 (SCD1), leading to a remarkable reduction of hepatic oleate content that would contribute to the improvement of steatosis by reducing triglycerides and cholesterol esters. Simultaneously, hepatic beta-oxidation, NADPH oxidase and cytochrome P450 2E1 (CYP2E1) were reduced, and thus reactive oxygen species (ROS) and inflammatory cytokines were also decreased. Consistent with these changes, ezetimibe diminished c-Jun N-terminal kinase (JNK) phosphorylation and improved insulin signaling in the liver. In vitro study using primary hepatocytes obtained from male SD rats, treated with oleate and LXR agonist, showed excess lipid accumulation, increased oxidative stress and impaired insulin signaling. Therefore, in obese subjects, ezetimibe reduces hepatic LXR activity by reducing hepatic oxysterols to lower hepatic oleate content. This improves steatosis and reduces oxidative stress, and this reduction improves insulin signaling in the liver. These results provide insight into pathogenesis and strategies for treatment of the metabolic syndrome.