Phosphatidylinositide 3-kinases (PI3Ks) play central roles in insulin signal transduction. While the contribution of class Ia PI3K members has been extensively studied, the role of class II members remains poorly understood. The diverse actions of class II PI3K-C2alpha have been attributed to its lipid product PI(3)P. By applying pharmacological inhibitors, transient overexpression and small-interfering RNA-based knockdown of PI3K and PKB/Akt isoforms, together with PI-lipid profiling and live-cell confocal and total internal reflection fluorescence microscopy, we now demonstrate that in response to insulin, PI3K-C2alpha generates PI(3,4)P(2), which allows the selective activation of PKBalpha/Akt1. Knockdown of PI3K-C2alpha expression and subsequent reduction of PKBalpha/Akt1 activity in the pancreatic beta-cell impaired glucose-stimulated insulin release, at least in part, due to reduced glucokinase expression and increased AS160 activity. Hence, our results identify signal transduction via PI3K-C2alpha as a novel pathway whereby insulin activates PKB/Akt and thus discloses PI3K-C2alpha as a potential drugable target in type 2 diabetes. The high degree of codistribution of PI3K-C2alpha and PKBalpha/Akt1 with insulin receptor B type, but not A type, in the same plasma membrane microdomains lends further support to the concept that selectivity in insulin signaling is achieved by the spatial segregation of signaling events.