Protein tyrosine phosphatase-1B (PTP-1B) has been implicated in the negative regulation of insulin signaling. Disruption of the mouse homolog of the gene encoding PTP-1B yielded healthy mice that, in the fed state, had blood glucose concentrations that were slightly lower and concentrations of circulating insulin that were one-half those of their PIP-1B(+/+) littermates. The enhanced insulin sensitivity of the PTP-1B(-/-) mice was also evident in glucose and insulin tolerance tests. The PTP-1B(-/-) mice showed increased phosphorylation of the insulin receptor in liver and muscle tissue after insulin injection in comparison to PTP-1B(+/+) mice. On a high-fat diet, the PTP-1B(-/-) and PTP-1B(+/-) mice were resistant to weight gain and remained insulin sensitive, whereas the PTP-1B(+/+) mice rapidly gained weight and became insulin resistant. These results demonstrate that PTP-1B has a major role in modulating both insulin sensitivity and fuel metabolism, thereby establishing it as a potential therapeutic target in the treatment of type 2 diabetes and obesity.