Insulin-stimulated glucose disposal in skeletal muscle proceeds predominantly through a nonoxidative pathway with glycogen synthase as a rate-limiting enzyme, yet the mechanisms for insulin activation of glycogen synthase are not understood despite years of investigation. Isolation of putative insulin second messengers from beef liver yielded a pseudo-disaccharide consisting of pinitol (3-O-methyl-d-chiro-inositol) beta-1,4 linked to galactosamine chelated with Mn(2+) (called INS2). Here we show that chemically synthesized INS2 has biological activity that significantly enhances insulin reduction of hyperglycemia in streptozotocin diabetic rats. We used computer modeling to dock INS2 onto the known three-dimensional crystal structure of protein phosphatase 2C (PP2C). Modeling and FlexX/CScore energy minimization predicted a unique favorable site on PP2C for INS2 in a surface cleft adjacent to the catalytic center. Binding of INS2 is predicted to involve formation of multiple H-bonds, including one with residue Asp163. Wild-type PP2C activity assayed with a phosphopeptide substrate was potently stimulated in a dose-dependent manner by INS2. In contrast, the D163A mutant of PP2C was not activated by INS2. The D163A mutant and wild-type PP2C in the absence of INS2 had the same Mn(2+)-dependent phosphatase activity with p-nitrophenyl phosphate as a substrate, showing that this mutation did not disrupt the catalytic site. We propose that INS2 allosterically activates PP2C, fulfilling the role of a putative mediator mimetic of insulin signaling to promote protein dephosphorylation and metabolic responses.