Protein-tyrosine phosphatase 1B (PTP-1B) is a major protein-tyrosine phosphatase that has been implicated in the regulation of insulin action, as well as in other signal transduction pathways. To investigate the role of PTP-1B in vivo, we generated homozygotic PTP-1B-null mice by targeted gene disruption. PTP-1B-deficient mice have remarkably low adiposity and are protected from diet-induced obesity. Decreased adiposity is due to a marked reduction in fat cell mass without a decrease in adipocyte number. Leanness in PTP-1B-deficient mice is accompanied by increased basal metabolic rate and total energy expenditure, without marked alteration of uncoupling protein mRNA expression. In addition, insulin-stimulated whole-body glucose disposal is enhanced significantly in PTP-1B-deficient animals, as shown by hyperinsulinemic-euglycemic clamp studies. Remarkably, increased insulin sensitivity in PTP-1B-deficient mice is tissue specific, as insulin-stimulated glucose uptake is elevated in skeletal muscle, whereas adipose tissue is unaffected. Our results identify PTP-1B as a major regulator of energy balance, insulin sensitivity, and body fat stores in vivo.Obesity and diabetes mellitus represent major public health problems. Type 2 diabetes is a polygenic disease affecting over 100 million people worldwide. The risk of developing type 2 diabetes is increased in populations that lead a sedentary lifestyle and consume a typical western diet, in which more than 50% of the calories are derived from fat (34, 37). A high-fat diet and low energy expenditure predispose to obesity, a condition characterized by increased insulin resistance in insulinresponsive tissues, such as skeletal muscle, liver, and white adipose tissue (9, 42). Body weight also is subject to polygenic regulation (18). Many of the key genes that regulate body mass and glucose homeostasis remain to be identified (27).Insulin plays a critical role in regulating glucose homeostasis, lipid metabolism, and energy balance. Insulin signaling is initiated by binding of insulin to the insulin receptor (IR), a receptor tyrosine kinase. Insulin binding evokes a cascade of phosphorylation events, beginning with the autophosphorylation of the IR on multiple tyrosyl residues. Autophosphorylation enhances IR kinase activity and triggers downstream signaling events. These include tyrosyl phosphorylation of IR substrate (IRS) proteins (IRS-1 to -4) and other adapter molecules (e.g., Grb2 and Shc), whose combined actions mediate the biological effects of insulin (reviewed in references 24, 43, 54, and 69).