Previous reports indicate that the expression and/or activity of the protein-tyrosine phosphatase (PTP) LAR are increased in insulin-responsive tissues of obese, insulin-resistant humans and rodents, but it is not known whether these alterations contribute to the pathogenesis of insulin resistance. To address this question, we generated transgenic mice that overexpress human LAR, specifically in muscle, to levels comparable to those reported in insulin-resistant humans. In LAR-transgenic mice, fasting plasma insulin was increased 2.5-fold compared with wild-type controls, whereas fasting glucose was normal. Whole-body glucose disposal and glucose uptake into muscle in vivo were reduced by 39-50%. Insulin injection resulted in normal tyrosyl phosphorylation of the insulin receptor and insulin receptor substrate 1 (IRS-1) in muscle of transgenic mice. However, phosphorylation of IRS-2 was reduced by 62%, PI3' kinase activity associated with phosphotyrosine, IRS-1, or IRS-2 was reduced by 34-57%, and association of p85alpha with both IRS proteins was reduced by 39-52%. Thus, overexpression of LAR in muscle causes whole-body insulin resistance, most likely due to dephosphorylation of specific regulatory phosphotyrosines on IRS proteins. Our data suggest that increased expression and/or activity of LAR or related PTPs in insulin target tissues of obese humans may contribute to the pathogenesis of insulin resistance.