Leptin has been shown to improve insulin sensitivity and glucose metabolism in obese diabetic ob/ob mice, yet the mechanisms remain poorly defined. We found that 2 d of leptin treatment improved fasting but not postprandial glucose homeostasis, suggesting enhanced hepatic insulin sensitivity. Consistent with this hypothesis, leptin improved in vivo insulin receptor (IR) activation in liver, but not in skeletal muscle or fat. To explore the cellular mechanism by which leptin up-regulates hepatic IR activation, we examined the expression of the protein tyrosine phosphatase PTP1B, recently implicated as an important negative regulator of insulin signaling. Unexpectedly, liver PTP1B protein abundance was increased by leptin to levels similar to lean controls, whereas levels in muscle and fat remained unchanged. The ability of leptin to augment liver IR activation and PTP1B expression was also observed in vitro in human hepatoma cells (HepG2). However, overexpression of PTP1B in HepG2 cells led to diminished insulin-induced IR phosphorylation, supporting the role of PTP1B as a negative regulator of IR activation in hepatocytes. Collectively, our results suggest that leptin acutely improves hepatic insulin sensitivity in vivo with concomitant increases in PTP1B expression possibly serving to counterregulate insulin action and to maintain insulin signaling in proper balance.