While most receptor tyrosine kinases signal by recruiting SH2 proteins directly to phosphorylation sites on their plasma membrane receptor, the insulin receptor phosphorylates intermediary IRS proteins that are distributed between the cytoplasm and a state of loose association with intracellular membranes. To determine the importance of this distribution to IRS-1-mediated signaling, we constructed a prenylated, constitutively membrane-bound IRS-1 by adding the COOH-terminal 9 amino acids from p21 ras , including the CAAX motif, to IRS-1 (IRS-CAAX) and analyzed its function in 32D cells expressing the insulin receptor. IRS-CAAX migrated more slowly on sodium dodecyl sulfate-polyacrylamide gel electrophoresis than did IRS-1 and demonstrated increased levels of serine/threonine phosphorylation. Insulin-stimulated tyrosyl phosphorylation of IRS-CAAX was slightly decreased, while IRS-CAAX-mediated phosphatidylinositol 3-kinase (PI3-kinase) binding and activation were decreased by approximately 75% compared to those for wild-type IRS-1. Similarly, expression of IRS-CAAX desensitized insulin-stimulated [ 3 H]thymidine incorporation into DNA by about an order of magnitude compared to IRS-1. By contrast, IRS-CAAX-expressing cells demonstrated increased signaling by mitogen-activated protein kinase, Akt, and p70 S6 kinase in response to insulin. Hence, tight association with the membrane increased IRS-1 serine phosphorylation and reduced coupling between the insulin receptor, PI3-kinase, and proliferative signaling while enhancing other signaling pathways. Thus, the correct distribution of IRS-1 between the cytoplasm and membrane compartments is critical to the normal balance in the network of insulin signaling.Many growth factors regulate cellular processes through activation of tyrosine kinases (11,55,58). Ligand binding to the extracellular region of the receptor results in activation of the intracellular tyrosine kinase domain of the receptor and receptor autophosphorylation (35). In most cases, tyrosyl autophosphorylation of the intracellular portion of the receptor directly recruits binding of downstream signaling partners through specialized phosphotyrosine-binding domains, e.g., SH2 domains in signaling proteins (26). The receptor thus nucleates a signaling complex containing numerous SH2 domain-containing signaling proteins (SH2 proteins) on the plasma membrane.The insulin receptor, like most growth factor receptors, contains intrinsic tyrosine kinase activity and undergoes tyrosine autophosphorylation during ligand stimulation (35). However, unlike most other growth factor receptors, the insulin receptor does not directly recruit SH2 proteins. Instead, the insulin receptor phosphorylates intracellular substrate proteins (such as the IRS proteins, IRS-1, IRS-2, IRS-3, and IRS-4) on multiple tyrosine residues, and these IRS proteins in turn recruit SH2 proteins such as phosphatidylinositol 3Ј-kinase (PI3Ј-kinase), GRB-2/mSos, and SHP-2 into a signaling complex (35). Previous studies have shown that the IRS protein...