Insulin stimulation of 3T3-L1 adipocytes results in rapid activation of the insulin receptor tyrosine kinase followed by autophosphorylation of the receptor and phosphorylation of insulin receptor substrate 1 (IRS-1), its major substrate. The insulin receptor resides mostly at the cell surface of 3T3-L1 adipocytes under basal conditions, while about two-thirds of IRS-1 fractionates with intracellular membranes and one-third fractionates with cytosol. To test whether insulin receptor internalization is required for optimal tyrosine phosphorylation of IRS-1, 3T3-L1 adipocytes and CHO-T cells were incubated at 4 degrees C which inhibits receptor endocytosis but not its tyrosine kinase activity. Under these conditions, tyrosine phosphorylation of IRS-1 in the low density microsome fraction in response to insulin was as intense as that observed at 37 degrees C, indicating that endocytosis of insulin receptors is not necessary for tyrosine phosphorylation of IRS-1 to occur. Surprisingly, at 37 degrees C, insulin action on 3T3-L1 adipocytes progressively decreased the amount of IRS-1 protein associated with the low density microsome fraction and increased that in the cytosol. This redistribution of IRS-1 from the low density microsome fraction to the cytosol in response to insulin was accompanied by decreased electrophoretic mobility of IRS-1 on SDS-polyacrylamide gel electrophoresis. Incubation of adipocytes at 4 degrees C blocked the appearance of tyrosine-phosphorylated IRS-1 in the cytosol. Taken together, these data indicate that insulin receptors phosphorylate IRS-1 at the cell surface, perhaps in coated pits which are included in the low density microsome fraction. The results also suggest a desensitization mechanism in which the tyrosine-phosphorylated membrane-bound IRS-1, associated with signaling molecules such as phosphatidylinositol 3-kinase, is released into the cytoplasm in concert with its serine/threonine phosphorylation.