The insulin-degrading enzyme (IDE) is an evolutionarily conserved enzyme that has been implicated in cellular insulin degradation, but its site of action and importance in regulating insulin degradation have not been clearly established. We addressed this question by examining the effects of overexpressing IDE on insulin degradation in COS cells, using both human IDE (hIDE) and its Drosophila homolog (dIDE). The dIDE, which was recently cloned in our laboratory, has 46% amino acid identity with hIDE, degrades insulin with comparable efficiency, and is readily expressed in mammalian cells. Transient expression of dIDE or hIDE in COS monkey kidney cells led to a 5- to 7-fold increase in the rate of degradation of extracellular insulin, indicating that IDE can regulate cellular insulin degradation. Insulin-degrading activity in the medium was very low and could not account for the difference between transfected and control cells. To further localize the site of IDE action, the fate of insulin after receptor binding was examined. The dIDE-transfected cells displayed increased degradation of prebound insulin compared to control cells. This increase in degradation was observed even when excess unlabeled insulin was added to block reuptake or extracellular degradation. These results indicate that IDE acts at least in part within the cell. The lysosomotropic agents chloroquine and NH4Cl did not affect the increase in insulin degradation produced by transfection with dIDE, indicating that the lysosomal and IDE-mediated pathways of insulin degradation are independent. The results demonstrate that IDE can regulate the degradation of insulin by intact cells via an intracellular pathway.