Mammalian insulin-degrading enzyme (IDE) cleaves insulin, among other peptidic substrates, but its function in insulin signaling is elusive. We use the Drosophila system to define the function of IDE in the regulation of growth and metabolism. We find that either loss or gain of function of Drosophila IDE (dIDE) can restrict growth in a cell-autonomous manner by affecting both cell size and cell number. dIDE can modulate Drosophila insulin-like peptide 2 levels, thereby restricting activation of the phosphatidylinositol-3-phosphate kinase pathway and promoting activation of Drosophila forkhead box, subgroup O transcription factor. Larvae reared in high sucrose exhibit delayed developmental timing due to insulin resistance. We find that dIDE loss of function exacerbates this phenotype and that mutants display increased levels of circulating sugar, along with augmented expression of a lipid biosynthesis marker. We propose that dIDE is a modulator of insulin signaling and that its loss of function favors insulin resistance, a hallmark of diabetes mellitus type II.