The mechanism (both at the whole body and cellular level) by which metformin improves insulin sensitivity has yet to be defined. In the present study, we examined in vivo insulin-mediated whole-body glucose disposal, glycogen synthesis, hepatic glucose production, and insulin secretion, as well as in vitro muscle insulin receptor tyrosine kinase activity in eight control, eight neonatal streptozotocin diabetic rats, and eight diabetic rats before and after treatment with metformin. Ten weeks after birth diabetic rats had higher fasting (132 + 5 v 101 + 2 mg/dL) and postmeal (231 + 10 v 133 + 3) plasma glucose levels compared with controls (P less than .001). Metformin treatment was followed by a significant decrease in the growth rate and normalized glucose tolerance without enhancing the deficient insulin response. Insulin-mediated glucose uptake in diabetic versus control rats was reduced (P less than .01) during the high-dose (15.4 + 0.6 v 18.3 + 1.0 mg/kg.min) insulin clamp study and was increased to values greater (P less than .05) than controls following metformin treatment. Muscle glycogen synthetic rate in vivo, measured by incorporation of 3H-3-glucose radioactivity, was diminished by 25% (P less than .01) in diabetic rats, restored to normal values with metformin, and correlated closely (r = .82, P less than .002) with total-body glucose uptake during the insulin clamp in all three groups. Insulin receptor tyrosine kinase activity, measured in partially purified insulin receptors, was reduced in diabetic rats and increased to supernormal levels after metformin. The decrease in muscle tyrosine kinase activity in diabetic versus control animals was entirely accounted for by a reduction in maximal velocity (Vmax) (32 v 45 pmol/mg.min, P less than .01) and increased to supernormal levels following metformin (91 pmol/mg.min, P less than .001) without any change in affinity (Km). Muscle tyrosine kinase activity was closely correlated with both the muscle glycogen synthetic rate (r = .82, P less than .002) and total-body insulin-mediated glucose disposal (r = .64, P less than .01) in vivo. The close correlation between in vivo insulin action, muscle glycogen synthesis, and muscle insulin receptor tyrosine kinase activity is consistent with an important role of the enzyme in the insulin resistance of diabetes and its improvement following metformin treatment.