Vanadate has insulin-like activity in vitro and in vivo. To characterize the in vivo mechanism of action of vanadate, we examined meal tolerance, insulin-mediated glucose disposal, in vivo liver and muscle glycogen synthesis, and in vitro glycogen synthase activity in 90% partially pancreatectomized rats. Four groups were studied: group I, sham-operated controls; group II, diabetic rats; group III, diabetic rats treated with vanadate; and group IV, diabetic rats treated with phlorizin. Insulin sensitivity, assessed with the euglycemic hyperinsulinemic clamp technique in awake, unstressed rats, was reduced by -28% in diabetic rats. Both vanadate and phlorizin treatment completely normalized meal tolerance and insulin-mediated glucose disposal. Muscle glycogen synthesis was reduced by -80% in diabetic rats (P < 0.01) and was completely restored to normal by vanadate, but not by phlorizin treatment. Glycogen synthase activity was reduced in skeletal muscle of diabetic rats (P < 0.05) compared with controls and was increased to supranormal levels by vanadate treatment (P < 0.01). Phlorizin therapy did not reverse the defect in muscle glycogen synthase.These results suggest that (a) the defect in muscle glycogen synthesis is the major determinant of insulin resistance in diabetic rats; (b) both vanadate and phlorizin treatment normalize meal tolerance and insulin sensitivity in diabetic rats; (c) vanadate treatment specifically reverses the defect in muscle glycogen synthesis in diabetic rats. This effect cannot be attributed to the correction of hyperglycemia because phlorizin therapy had no direct influence on the glycogenic pathway.