While positive regulatory events triggered by insulin binding to insulin receptor (IR) have been well documented, the mechanism by which the activated IR is returned to the basal status is not completely understood. Recently, studies have focused on the involvement of protein tyrosine phosphatases (PTPs) and how they might influence IR signaling. In this study, we examined the possibility that cytosolic PTP (cytPTP) is involved in IR signaling. Studies were performed on L6 skeletal muscle cells. cytPTP was over expressed by using pBABE retroviral expression vectors. In addition, we inhibited cytPTP by RNA silencing. We found that insulin induced rapid association of cytPTP with IR. Interestingly, this association appeared to occur in the plasma membrane, and on stimulation with insulin the two proteins internalized together. Moreover, it appeared that almost all internalized IR was associated with cytPTP. We found that knockdown of cytPTP by RNA silencing increased insulin-induced tyrosine phosphorylation of IR, IRS-1, as well as phosphorylation of PKB and GSK3, and insulin-induced stimulation of glucose uptake. Moreover, overexpression of WT cytPTP reduced insulin-induced tyrosine phosphorylation of IR, IRS-1, as well as phosphorylation of PKB and GSK3, and insulin-induced stimulation of glucose uptake. Finally, insulin-induced tyrosine phosphorylation of IR and IRS-1 was greater in skeletal muscle from mice lacking the cytPTP gene than that from wild type control animals. We conclude that cytoplasmic PTP (cytPTP) serves as another major candidate negative regulator of IR signaling in skeletal muscle.