Abstract Estrogen replacement therapy reduces the incidence of type 2 diabetes in postmenopausal women; however, the mechanism is unknown. Therefore, the aim of this study was to evaluate the metabolic effects of estrogen replacement therapy in an experimental model of menopause. At 8 weeks of age, female mice were ovariectomized (OVX) or sham (SHAM) operated, and OVX mice were treated with vehicle (OVX) or estradiol (E2) (OVX+E2). After 4 weeks of high-fat diet feeding, OVX mice had increased body weight and fat mass compared with SHAM and OVX+E2 mice. OVX mice displayed reduced whole-body energy expenditure, as well as impaired glucose tolerance and whole-body insulin resistance. Differences in whole-body insulin sensitivity in OVX compared with SHAM mice were accounted for by impaired muscle insulin sensitivity, whereas both hepatic and muscle insulin sensitivity were impaired in OVX compared with OVX+E2 mice. Muscle diacylglycerol (DAG), content in OVX mice was increased relative to SHAM and OVX+E2 mice. In contrast, E2 treatment prevented the increase in hepatic DAG content observed in both SHAM and OVX mice. Increases in tissue DAG content were associated with increased protein kinase Cϵ activation in liver of SHAM and OVX mice compared with OVX+E2 and protein kinase Cθ activation in skeletal muscle of OVX mice compared with SHAM and OVX+E2. Taken together, these data demonstrate that E2 plays a pivotal role in the regulation of whole-body energy homeostasis, increasing O2 consumption and energy expenditure in OVX mice, and in turn preventing diet-induced ectopic lipid (DAG) deposition and hepatic and muscle insulin resistance.