Peroxisome-proliferator-activated receptor gamma agonists such as rosiglitazone, a thiazolidinedione, improve insulin sensitivity in vivo, but the underlying mechanism(s) remains unclear. Phosphorylation of IRS1 (insulin receptor substrate protein 1) on certain serine residues, including S307 and S612 in rodent IRS1 (equivalent to S312 and S616 in human IRS1), has been shown to play a negative role in insulin signalling. In the present study, we investigated whether rosiglitazone improves insulin sensitivity by decreasing IRS1 inhibitory serine phosphorylation. In HEK-293 (human embryonic kidney 293) cells stably expressing recombinant IRS1 and in 3T3L1 adipocytes, rosiglitazone attenuated PMA-induced IRS1 S307/S612 phosphorylation and decreased insulin-stimulated Akt phosphorylation. We observed increased IRS1 S307 phosphorylation and concomitant decrease in insulin signalling as measured by insulin-stimulated IRS1 tyrosine phosphorylation, and Akt threonine phosphorylation in adipose tissues of Zucker obese rats compared with lean control rats. Treatment with rosiglitazone at 30 mg/kg body weight for 24 and 48 h increased insulin signalling and decreased IRS1 S307 phosphorylation concomitantly. Whereas the 48 h treatment reversed hyper-phosphorylation (and activation) of both c-Jun N-terminal kinase and p38 mitogen-activated protein kinase, the 24 h treatments only decreased hyper-phosphorylation of p38 mitogen-activated protein kinase. The treatment of the Zucker obese rats with rosiglitazone also reversed the high circulating levels of non-esterified fatty acids, which have been shown to be correlated with increased IRS1 serine phosphorylation in other animal models. Taken together, these results suggest that IRS1 inhibitory serine phosphorylation is a key component of insulin resistance and its reversal contributes to the insulin sensitizing effects by rosiglitazone.