We have studied the phosphorylation state of the insulin receptor during receptor-mediated endocytosis in the well-differentiated rat hepatoma cell line Fao. Insulin induced the rapid internalization of surface-iodinated insulin receptors into a trypsin-resistant compartment, with a 3-fold increase in the internalization rate over that seen in the absence of insulin. Within 20 min of insulin stimulation, 30-35% of surface receptors were located inside the cell. This redistribution was half-maximal by 10.5 min. Similar results were obtained when the loss of surface receptors was measured by 125I-insulin binding. Tyrosyl phosphorylation of internalized insulin receptors was measured by immunoprecipitation with antiphosphotyrosine antibody. Immediately after insulin stimulation, 70-80% of internalized receptors were tyrosine phosphorylated. Internalized receptors persisted in a phosphorylated state after the dissociation of insulin but were dephosphorylated prior to their return to the plasma membrane. After 45-60 min of insulin stimulation, the tyrosine phosphorylation of the internal receptor pool decreased by 45%, whereas the phosphorylation of surface receptors was unchanged. These data suggest that insulin induces the internalization of phosphorylated insulin receptors into the cell and that the phosphorylation state of the internal receptor pool may be regulated by insulin.