Chronic oxidative stress results in decreased responsiveness to insulin, eventually leading to diabetes and cardiovascular disease. Activation of the JNK signaling pathway can mediate many of the effects of stress on insulin resistance through inhibitory phosphorylation of insulin receptor substrate 1. By contrast, exercise, which acutely increases oxidative stress in the muscle, improves insulin sensitivity and glucose tolerance in patients with Type 2 diabetes. To elucidate the mechanism underlying the contrasting effects of acute versus chronic oxidative stress on insulin sensitivity, we used a cellular model of insulin-resistant muscle to induce either chronic or acute oxidative stress and investigate their effects on insulin and JNK signaling. Chronic oxidative stress resulted in increased levels of phosphorylated (activated) JNK in the cytoplasm, whereas acute oxidative stress led to redistribution of JNK-specific phosphatase MKP7 from the nucleus into the cytoplasm, reduction in cytoplasmic phospho-JNK, and a concurrent accumulation of phospho-JNK in the nucleus. Acute oxidative stress restored normal insulin sensitivity and glucose uptake in insulin-resistant muscle cells, and this effect was dependent on MKP7. We propose that the contrasting effects of acute and chronic stress on insulin sensitivity are driven by changes in subcellular distribution of MKP7 and activated JNK.