The Src homology 2 domain-containing protein-tyrosine phosphatase Shp2 has been implicated in a variety of growth factor signaling pathways, but its role in insulin signaling has remained unresolved. In vitro studies suggest that Shp2 is both a negative and positive regulator of insulin signaling, although its physiological function in a number of peripheral insulin-responsive tissues remains unknown. To address the metabolic role of Shp2 in the liver, we generated mice with either chronic or acute hepatic Shp2 deletion using tissue-specific Cre-LoxP and adenoviral Cre approaches, respectively. We then analyzed insulin sensitivity, glucose tolerance, and insulin signaling in liver-specific Shp2-deficient and control mice. Mice with chronic Shp2 deletion exhibited improved insulin sensitivity and increased glucose tolerance compared with controls. Acute Shp2 deletion yielded comparable results, indicating that the observed metabolic effects are directly caused by the lack of Shp2 in the liver. These findings correlated with, and were most likely caused by, direct dephosphorylation of insulin receptor substrate (IRS)1/2 in the liver, accompanied by increased PI3K/Akt signaling. In contrast, insulin-induced ERK activation was dramatically attenuated, yet there was no effect on the putative ERK site on IRS1 (Ser(612)) or on S6 kinase 1 activity. These studies show that Shp2 is a negative regulator of hepatic insulin action, and its deletion enhances the activation of PI3K/Akt pathway downstream of the insulin receptor.