Insulin receptor substrate 1 (IRS-1) is a major substrate of the insulin receptor and has been implicated in insulin signaling. Although IRS-1 is thought to interact with the insulin receptor, the nature of the interaction has not been defined. In this study, we used the two-hybrid assay of protein-protein interaction in the yeast Saccharomyces cerevisiae to study the interaction between human IRS-1 and the insulin receptor. We demonstrate that IRS-1 forms a specific complex with the cytoplasmic domain of the insulin receptor when both are expressed as hybrid proteins in yeast cells. We show that the interaction is strictly dependent upon receptor tyrosine kinase activity, since IRS-1 shows no interaction with a kinase-inactive receptor hybrid containing a mutated ATP-binding site. Furthermore, mutation of receptor tyrosine 960 to phenylalanine eliminates IRS-1 interaction in the two-hybrid assay. These data suggest that the interaction between IRS-1 and the receptor is direct and provide evidence that the juxtamembrane domain of the receptor is involved. Furthermore, we show that a 356-amino-acid region encompassed by amino acids 160 through 516 of IRS-1 is sufficient for interaction with the receptor in the two-hybrid assay. Lastly, in agreement with our findings for yeast cells, we show that the insulin receptor is unable to phosphorylate an IRS-1 protein containing a deletion of amino acids 45 to 516 when expressed in COS cells. The two-hybrid assay should provide a facile means by which to pursue a detailed understanding of this interaction.