Phosphatidylinositol (PI) 3-kinase plays an important role in various metabolic actions of insulin including glucose uptake and glycogen synthesis. Although PI 3-kinase primarily functions as a lipid kinase which preferentially phosphorylates the D-3 position of phospholipids, the effect of hydrolysis of the key PI 3-kinase product PI 3,4,5-triphosphate [PI(3,4,5)P3] on these biological responses is unknown. We recently cloned rat SH2-containing inositol phosphatase 2 (SHIP2) cDNA which possesses the 5'-phosphatase activity to hydrolyze PI(3,4,5)P3 to PI 3,4-bisphosphate [PI(3,4)P2] and which is mainly expressed in the target tissues of insulin. To study the role of SHIP2 in insulin signaling, wild-type SHIP2 (WT-SHIP2) and 5'-phosphatase-defective SHIP2 (Delta IP-SHIP2) were overexpressed in 3T3-L1 adipocytes by means of adenovirus-mediated gene transfer. Early events of insulin signaling including insulin-induced tyrosine phosphorylation of the insulin receptor beta subunit and IRS-1, IRS-1 association with the p85 subunit, and PI 3-kinase activity were not affected by expression of either WT-SHIP2 or Delta IP-SHIP2. Because WT-SHIP2 possesses the 5'-phosphatase catalytic region, its overexpression marked by decreased insulin-induced PI(3,4,5)P3 production, as expected. In contrast, the amount of PI(3,4,5)P3 was increased by the expression of Delta IP-SHIP2, indicating that Delta IP-SHIP2 functions in a dominant-negative manner in 3T3-L1 adipocytes. Both PI(3,4,5)P3 and PI(3,4)P2 were known to possibly activate downstream targets Akt and protein kinase C lambda in vitro. Importantly, expression of WT-SHIP2 inhibited insulin-induced activation of Akt and protein kinase C lambda, whereas these activations were increased by expression of Delta IP-SHIP2 in vivo. Consistent with the regulation of downstream molecules of PI 3-kinase, insulin-induced 2-deoxyglucose uptake and Glut4 translocation were decreased by expression of WT-SHIP2 and increased by expression of Delta IP-SHIP2. In addition, insulin-induced phosphorylation of GSK-3beta and activation of PP1 followed by activation of glycogen synthase and glycogen synthesis were decreased by expression of WT-SHIP2 and increased by the expression of Delta IP-SHIP2. These results indicate that SHIP2 negatively regulates metabolic signaling of insulin via the 5'-phosphatase activity and that PI(3,4,5)P3 rather than PI(3,4)P2 is important for in vivo regulation of insulin-induced activation of downstream molecules of PI 3-kinase leading to glucose uptake and glycogen synthesis.