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Hepatic insulin resistance is recognized as a driver of type 2 diabetes and fatty liver disease but specific therapies are lacking. Here we explore the potential of human induced pluripotent stem cells (iPSCs) for modeling hepatic insulin resistance in vitro, with a focus on resolving the controversy about the impact of inflammation in the absence of steatosis. For this, we establish the complex insulin signaling cascade and the multiple inter-dependent functions constituting hepatic glucose metabolism in iPSC-derived hepatocytes (iPSC-Heps). Co-culture of these insulin-sensitive iPSC-Heps with isogenic iPSC-derived pro-inflammatory macrophages induces glucose output by preventing insulin from inhibiting gluconeogenesis and glycogenolysis and activating glycolysis. Screening identifies TNFα and IL1β as the mediators of insulin resistance in iPSC-Heps. Neutralizing these cytokines together restores insulin sensitivity in iPSC-Heps more effectively than individual inhibition, reflecting specific effects on insulin signaling and glucose metabolism mediated by NF-κB or JNK. These results show that inflammation is sufficient to induce hepatic insulin resistance and establish a human iPSC-based in vitro model to mechanistically dissect and therapeutically target this metabolic disease driver.