Physiological doses of insulin in rats resulted in a rapid redistribution of key signaling proteins between subcellular compartments in rat liver. In plasma membranes (PM) and microsomes, insulin induced a rapid decrease in insulin receptor substrate-1/2 (IRS1/2) within 30 sec and an increase in these proteins in endosomes (EN) and cytosol. The level of p85 in PM increased 2.3-fold at 30 sec after insulin stimulation followed by a decrease at 2 min. In this interval, 60-85% and 10-20% of p85 in PM was associated with IRS1 and IRS2, respectively. Thus, in PM, IRS1/2 accounts for almost all of the protein involved in phosphatidylinositol 3-kinase activation. In ENs insulin induced a maximal increase of 40% in p85 recruitment. As in PM, almost all p85 was associated with IRS1/2. The greater level of p85 recruitment to PM was associated with a higher level of insulin-induced recruitment of Akt1 to this compartment (4.0-fold in PM vs. 2.4-fold in EN). There was a close correlation between Akt1 activity and Akt1 phosphorylation at Thr308 and Ser473 in PM and cytosol. However, in ENs the level of Akt1 activity per unit of phosphorylated Akt1 was significantly greater than in PM, indicating that in addition to phosphorylation, another factor(s) modulates Akt1 activation by insulin in rat liver. Our results demonstrate that activation of the insulin receptor kinase and modulation of key components of the insulin signaling cascade occur at the cell surface and within the endosomal system. These data provide further support for the role of the endocytic process in cell signaling.