Zfp125 is a transcriptional repressor that inhibits hepatic VLDL secretion. Here we show that mice with liver-specific Zfp125 knockdown exhibited lower respiratory quotient, reduced glycemia and pyruvate-stimulated liver glucose output, and higher levels of β-hydroxyl-butyrate. Microarray and ChIP-seq studies identified Zfp125 peaks in the promoter of 135 metabolically relevant genes, including genes involved in fatty acid oxidation and ketogenesis, e.g. Ppara, Cpt1a, Bdh1 and Hmgcs2. Repression by Zfp125 involved recruitment of the corepressors Kap1 and the histone methyl transferase Setdb1, increasing the levels of H3K9me3, a heterochromatin marker of gene silencing. The resulting increase in acetyl-CoA levels accelerated gluconeogenesis through allosteric activation of pyruvate carboxylase. Zfp125 knockdown in isolated mouse hepatocytes amplified the induction of ketogenesis by glucagon or insulin resistance, whereas the expression of key gluconeogenic genes Pck1 and G6pc was amplified by Zfp125. These findings place Zfp125 at the center of fuel dysregulation of type 2 diabetes.