Protein tyrosine phosphatase 1B (PTP1B) acts as a physiological negative regulator of insulin signaling by dephosphorylating the activated insulin receptor (IR). Here we examine the role of PTP1B in the insulin-sensitizing action of rosiglitazone (RSG) in skeletal muscle and liver. Fat-fed, streptozotocin-treated rats (10-week-old), an animal model of type II diabetes, and age-matched, nondiabetic controls were treated with RSG (10 micromol kg(-1) day(-1)) for 2 weeks. After RSG treatment, the diabetic rats showed a significant decrease in blood glucose and improved insulin sensitivity. Diabetic rats showed significantly increased levels and activities of PTP1B in the skeletal muscle (1.6- and 2-fold, respectively) and liver (1.7- and 1.8-fold, respectively), thus diminishing insulin signaling in the target tissues. We found that the decreases in insulin-stimulated glucose uptake (55%), tyrosine phosphorylation of IRbeta-subunits (48%), and IR substrate-1 (IRS-1) (39%) in muscles of diabetic rats were normalized after RSG treatment. These effects were associated with 34 and 30% decreases in increased PTP1B levels and activities, respectively, in skeletal muscles of diabetic rats. In contrast, RSG did not affect the increased PTP1B levels and activities or the already reduced insulin-stimulated glycogen synthesis and tyrosine phosphorylation of IRbeta-subunits and IRS-2 in livers of diabetic rats. RSG treatment in normal rats did not significantly change PTP1B activities and levels or protein levels of IRbeta, IRS-1, and -2 in diabetic rats. These data suggest that RSG enhances insulin activity in skeletal muscle of diabetic rats possibly by ameliorating abnormal levels and activities of PTP1B.