Context: African-American women (AAW) have an increased risk of developing type 2 diabetes compared with Caucasian women (CW). Lower insulin sensitivity has been reported in AAW, but the reasons for this racial difference and the contributions of liver versus skeletal muscle are incompletely understood. Objective: We tested the hypothesis that young, nonobese AAW manifest lower insulin sensitivity specific to skeletal muscle, not liver, and is accompanied by lower skeletal muscle mitochondrial oxidative capacity. Participants and Main Outcome Measures: Twenty-two nonobese (body mass index 22.7 ± 3.1 kg/m2) AAW and 22 matched CW (body mass index 22.7 ± 3.1 kg/m2) underwent characterization of body composition, objectively assessed habitual physical activity, and insulin sensitivity with euglycemic clamps and stable-isotope tracers. Skeletal muscle biopsies were performed for lipid content, fiber typing, and mitochondrial measurements. Results: Peripheral insulin sensitivity was 26% lower in AAW (P < .01), but hepatic insulin sensitivity was similar between groups. Physical activity levels were similar between groups. Lower insulin sensitivity in AAW was not explained by total or central adiposity. Skeletal muscle triglyceride content was similar, but mitochondrial content was lower in AAW. Mitochondrial respiration was 24% lower in AAW and correlated with skeletal muscle insulin sensitivity (r = 0.33, P < .05). Conclusion: When compared with CW, AAW have similar hepatic insulin sensitivity but a muscle phenotype characterized by both lower insulin sensitivity and lower mitochondrial oxidative capacity. These observations occur in the absence of obesity and are not explained by physical activity. The only factor associated with lower insulin sensitivity in AAW was mitochondrial oxidative capacity. Because exercise training improves both mitochondrial capacity and insulin sensitivity, we suggest that it may be of particular benefit as a strategy for diabetes prevention in AAW.