In accordance with the present invention, it has been discovered that CREB regulates hepatic gluconeogenesis via the co-activator, PGC-1. PGC-1 potentiated glucocorticoid induction of the gene for PEPCK, the rate limiting enzyme in gluconeogenesis, via the glucocorticoid response unit in the promoter, indicating that activation of PGC-1 by CREB in liver contributes to the pathogenesis of diabetes mellitus. In accordance with the above discoveries, the present invention provides a method of identifying a compound that modulates gluconeogenesis. The invention method comprises contacting CREB and a nucleic acid comprising a PGC-1 promoter with a test compound, and determining if the test compound modulates binding between CREB and the PGC-1 promoter.