Insulin resistance is the central defect in type 2 diabetes and obesity. During the development of insulin resistance a lipid accumulation is accompanied by increased PTP-1B expression in the muscle. The aim of this study was to examine the effects of PTP-1B knockdown on insulin signaling and insulin resistance in the presence or absence of palmitate in C2C12 skeletal muscle cells. A stable C2C12 cell line was established using short hairpin RNA (shRNA) to knockdown protein expression of PTP1B. Analysis of PTP-1B protein expression and phosphorylation and protein levels of IRS-1 and Akt were detected by western blot. The effects of PTP-1B knockdown on the glucose uptake was also measured in C2C12 cells. The stable C2C12 cell line harboring the PTP-1B shRNA showed 62% decrease in the PTP-1B protein levels. 0.5 mM palmitate significantly induced insulin resistance in both control (26%) and PTP-1B knockdown cells (16.5%) compared to the untreated cells. Under treatment with palmitate, insulin stimulated phosphorylation of IRS-1 (Tyr632) and Akt (Ser473) in knockdown cells was significantly 1.55- and 1.86-fold, respectively, greater than the controls. In the presence of palmitate, insulin dependent glucose uptake was significantly about 3-fold higher in PTP-1B knockdown stable C2C12 cells compared to the control cells. Our data showed that decreasing the PTP-1B protein level by shRNA can enhance the activity of important elements of insulin signaling. The improvement in insulin action persisted even in palmitate treated insulin resistant myotubes.