Decrease of AMPK-related signal transduction and insufficient lipid oxidation contributes to the pathogenesis of obesity and type 2 diabetes. Previously, we identified that diacylglycerol kinase (DGK, an enzyme involved in triglyceride biosynthesis, is reduced in skeletal muscle from type 2 diabetic patients. Here we test the hypothesis that DGK plays a role in maintaining appropriate AMPK action in skeletal muscle and energetic aspects of contraction. Voluntary running activity was reduced in DGK^+/- mice, but glycogen content and mitochondrial markers were unaltered, suggesting DGK deficiency affects skeletal muscle energetics, but not mitochondrial protein abundance. We next determined the role of DGK in AMPK-related signal transduction and lipid metabolism in isolated skeletal muscle. AMPK activation and signaling was reduced in DGK^+/- mice, concomitant with impaired lipid oxidation and elevated incorporation of free fatty acids into triglycerides. Strikingly, DGK deficiency impaired work performance as evident by altered force-production and relaxation dynamics in response to repeated contractions. In conclusion, DGK deficiency impairs AMPK signaling and lipid metabolism, thereby highlighting the deleterious role of excessive lipid metabolites in the development of peripheral insulin resistance and type 2 diabetes pathogenesis. DGK deficiency also influences skeletal muscle energetics, which may lead to low physical activity levels in type 2 diabetes.