High-fat diet (HFD)–induced obesity and insulin resistance are associated with increased activity of the endocannabinoid/CB₁ receptor (CB₁R) system that promotes the hepatic expression of lipogenic genes, including stearoyl-CoA desaturase-1 (SCD1). Mice deficient in CB₁R or SCD1 remain lean and insulin-sensitive on an HFD, suggesting a functional link between the two systems. The HFD-induced increase in the hepatic levels of the endocannabinoid anandamide [i.e., arachidonoylethanolamide (AEA)] has been attributed to reduced activity of the AEA-degrading enzyme fatty acid amide hydrolase (FAAH). Here we show that HFD-induced increased hepatic AEA levels and decreased FAAH activity are absent in SCD1^−/− mice, and the monounsaturated fatty acid (MUFA) products of SCD1, palmitoleic and oleic acid, inhibit FAAH activity in vitro at low micromolar concentrations. HFD markedly increases hepatic SCD1 activity in WT mice as well as in CB₁R^−/− mice with transgenic reexpression of CB₁R in hepatocytes, but not in global CB₁R^−/− mice. Treatment of HFD-fed mice with the SCD1 inhibitor A939572 prevents the diet-induced reduction of hepatic FAAH activity, normalizes hepatic AEA levels, and improves insulin sensitivity. SCD1^−/− mice on an HFD remain insulin-sensitive, but develop glucose intolerance and insulin resistance in response to chronic treatment with the FAAH inhibitor URB597. An HFD rich in MUFA or feeding mice pure oleic acid fail to inhibit hepatic FAAH activity. We conclude that MUFAs generated via SCD1 activity, but not diet-derived MUFAs, function as endogenous FAAH inhibitors mediating the HFD-induced increase in hepatic AEA, which then activates hepatic CB₁R to induce insulin resistance.