Adiponectin is a multifunctional adipokine that circulates as several oligomeric complexes in the blood stream. However, the molecular basis that regulates the production of the adiponectin oligomers remains largely elusive. We have shown previously that several conserved lysine residues (positions 68, 71, 80, and 104) within the collagenous domain of adiponectin are modified by hydroxylation and glycosylation (Wang, Y., Xu, A., Knight, C., Xu, L. Y., and Cooper, G. J. (2002) J. Biol. Chem. 277, 19521-19529). Here, we investigated the potential roles of these post-translational modifications in oligomeric complex formation of adiponectin. Gel filtration chromatography revealed that adiponectin produced from mammalian cells formed trimeric, hexameric, and high molecular weight (HMW) oligomeric complexes. These three oligomeric forms were differentially glycosylated, with the HMW oligomer having the highest carbohydrate content. Disruption of hydroxylation and glycosylation by substitution of the four conserved lysines with arginines selectively abrogated the intracellular assembly of the HMW oligomers in vitro as well as in vivo. In type 2 diabetic patients, both the ratios of HMW to total adiponectin and the degree of adiponectin glycosylation were significantly decreased compared with healthy controls. Functional studies of adiponectin-null mice revealed that abrogation of lysine hydroxylation/glycosylation markedly decreased the ability of adiponectin to stimulate phosphorylation of AMP-activated protein kinase in liver tissue. Chronic treatment of db/db diabetic mice with wild-type adiponectin alleviated hyperglycemia, hypertriglyceridemia, hepatic steatosis, and insulin resistance, whereas full-length adiponectin without proper post-translational modifications and HMW oligomers showed substantially decreased activities. Taken together, these data suggest that hydroxylation and glycosylation of the lysine residues within the collagenous domain of adiponectin are critically involved in regulating the formation of its HMW oligomeric complex and consequently contribute to the insulin-sensitizing activity of adiponectin in hepatocytes.