The broad nature of insulin resistant glucose metabolism in skeletal muscle of patients with type 2 diabetes suggests a defect in the proximal part of the insulin signaling network. We sought to identify the pathways compromised in insulin resistance and to test the effect of moderate exercise on whole-body and cellular insulin action. We conducted euglycemic clamps and muscle biopsies on type 2 diabetic patients, obese nondiabetics and lean controls, with and without a single bout of exercise. Insulin stimulation of the phosphatidylinositol 3-kinase (PI 3-kinase) pathway, as measured by phosphorylation of the insulin receptor and IRS-1 and by IRS protein association with p85 and with PI 3-kinase, was dramatically reduced in obese nondiabetics and virtually absent in type 2 diabetic patients. Insulin stimulation of the MAP kinase pathway was normal in obese and diabetic subjects. Insulin stimulation of glucose-disposal correlated with association of p85 with IRS-1. Exercise 24 hours before the euglycemic clamp increased phosphorylation of insulin receptor and IRS-1 in obese and diabetic subjects but did not increase glucose uptake or PI 3-kinase association with IRS-1 upon insulin stimulation. Thus, insulin resistance differentially affects the PI 3-kinase and MAP kinase signaling pathways, and insulin-stimulated IRS-1-association with PI 3-kinase defines a key step in insulin resistance.