Chromium is essential for proper carbohydrate and lipid metabolism in mammals, although the mechanism of this action has previously proved elusive. Low-molecular-weight chromium-binding protein (LMWCr), a biologically active form of chromium in mammals, potentiates the effect of insulin on the conversion of glucose into lipid and into carbon dioxide in isolated adipocytes. Kinetics studies indicate that LMWCr isolated from bovine liver activates phosphotyrosine phosphatase (PTP) activity in adipocyte membranes while having no intrinsic phosphatase activity. This activation is directly proportional to the amount of added LMWCr. The pattern of inhibition of this activity in the presence of a number of known phosphatase inhibitors suggests the involvement of a membrane phosphotyrosine phosphatase similar to PTP1A' or PTP1B. We propose that chromium plays a biological role in the activation of a membrane phosphotyrosine phosphatase.