In this study, the acute effects of tumor necrosis factor (TNF)-alpha on insulin-stimulated glucose uptake, glycogen synthesis, and protein phosphatase-1 (PP-1) activation were examined in cultured rat skeletal muscle cell line, L6. Exposure of L6 cells to low concentrations of TNF-alpha (10 ng/ml for 60 min) inhibited basal and insulin stimulated 2-deoxyglucose uptake (40-50% decrease in basal and insulin stimulated glucose uptake respectively, when compared with controls, P < 0.05). The effect of TNF-alpha was more pronounced when the incubation period was extended to 6 and 12 h. TNF-alpha also blocked insulin activation of glycogen synthase (GS) and inhibited glycogen synthesis (measured as [14C]-glucose incorporated into glycogen). Because GS is activated by dephosphorylation via protein phosphatase-1 (PP-1), we examined the effect of TNF- alpha on PP-1 activation. As reported by us earlier (Srinivasan, M., and N. Begum, J Biol Chem 269:16662-16667, 1994), insulin rapidly stimulated PP-1 and concomitantly inhibited PP-2A activities in L6 cells. Pretreatment with TNF- alpha for 10-60 min blocked subsequent insulin-induced activation of PP-1. The impaired activation of PP-1 was accompanied by a reduction in insulin-stimulated phosphorylation of the regulatory subunit of PP-1. cAMP-Rp diastereomer, a cAMP antagonist failed to prevent the detrimental effects of TNF-alpha on PP-1. Cell permeable ceramide analogs, C2, C6, and Sphingomyelinase mimicked the effects of TNF-alpha on PP-1 inhibition. Furthermore, TNF-alpha treatment was accompanied by an increase in cellular ceramide levels, with concomitant reductions in sphingomyelin. We conclude that TNF-alpha blocks insulin-stimulated glycogen synthesis by inhibiting PP-1 activation via ceramide release.