Particulate and cytosolic protein tyrosine phosphatase (PTPase) activity was measured in skeletal muscle from 15 insulin-sensitive subjects and 5 insulin-resistant nondiabetic subjects, as well as 18 subjects with non-insulin-dependent diabetes mellitus (NIDDM). Approximately 90% of total PTPase activity resided in the particulate fraction. In comparison with lean nondiabetic subjects, particulate PTPase activity was reduced 21% (P < 0.05) and 22% (P < 0.005) in obese nondiabetic and NIDDM subjects, respectively. PTPase1B protein levels were likewise decreased by 38% in NIDDM subjects (P < 0.05). During hyperinsulinemic glucose clamps, glucose disposal rates (GDR) increased approximately sixfold in lean control and twofold in NIDDM subjects, while particulate PTPase activity did not change. However, a strong positive correlation (r = 0.64, P < 0.001) existed between particulate PTPase activity and insulin-stimulated GDR. In five obese NIDDM subjects, weight loss of approximately 10% body wt resulted in a significant and corresponding increase in both particulate PTPase activity and insulin-stimulated GDR. These findings indicate that skeletal muscle particulate PTPase activity and PTPase1B protein content reflect in vivo insulin sensitivity and are reduced in insulin resistant states. We conclude that skeletal muscle PTPase activity is involved in the chronic, but not acute regulation of insulin action, and that the decreased enzyme activity may have a role in the insulin resistance of obesity and NIDDM.