The function of insulin receptor substrate-1 (IRS-1), a key molecule of insulin signaling, is modulated by phosphorylation at multiple serine/threonine residues. Phorbol ester stimulation of cells induces phosphorylation of two inhibitory serine residues in IRS-1, i.e. Ser-307 and Ser-318, suggesting that both sites may be targets of protein kinase C (PKC) isoforms. However, in an in vitro system using a broad spectrum of PKC isoforms (alpha, beta1, beta2, delta, epsilon, eta, mu), we detected only Ser-318, but not Ser-307 phosphorylation, suggesting that phorbol ester-induced phosphorylation of this site in intact cells requires additional signaling elements and serine kinases that link PKC activation to Ser-307 phosphorylation. As we have observed recently that the tyrosine phosphatase Shp2, a negative regulator of insulin signaling, is a substrate of PKC, we studied the role of Shp2 in this context. We found that phorbol ester-induced Ser-307 phosphorylation is reduced markedly in Shp2-deficient mouse embryonic fibroblasts (Shp2-/-) whereas Ser-318 phosphorylation is unaltered. The Ser-307 phosphorylation was rescued by transfection of mouse embryonic fibroblasts with wild-type Shp2 or with a phosphatase-inactive Shp2 mutant, respectively. In this cell model, tumor necrosis factor-alpha-induced Ser-307 phosphorylation as well depended on the presence of Shp2. Furthermore, Shp2-dependent phorbol ester effects on Ser-307 were blocked by wortmannin, rapamycin, and the c-Jun NH2-terminal kinase (JNK) inhibitor SP600125. This suggests an involvement of the phosphatidylinositol 3-kinase/mammalian target of rapamycin cascade and of JNK in this signaling pathway resulting in IRS-1 Ser-307 phosphorylation. Because the activation of these kinases does not depend on Shp2, it is concluded that the function of Shp2 is to direct these activated kinases to IRS-1.