Fragments of 125I-labeled insulin (125I-insulin) are rapidly produced after the initial cell binding process. After association of 125I-insulin with hepatocytes, hormone fragments remain bound to cells. At 23 degrees C, approximately 20% of the label bound at steady state was soluble in trichloroacetic acid. Correction of saturation experiments for the presence of bound trichloroacetic acid-soluble insulin fragments decreased the number and increased the affinity of 125I-insulin-binding sites. Label extracted from cell pellets recovered from saturation experiments was characterized by gel filtration; 59%, 55%, 40%, and 36% of the bound label was from intact hormone after recovery from incubation mixtures containing 0.18, 0.60, 4.6, and 7.5 nM applied 125I-insulin, respectively. At high applied 125I-insulin concentrations, the hormone predominantly interacted with lower affinity degradation systems. When binding data were corrected to assay for undegraded 125I-insulin only, curvilinear Scatchard plots were linearized. The insulin receptor is therefore not composed of heterogeneous or negatively cooperative sites. It is necessary to correct for retained fragments of 125I-insulin in order to define mechanisms through which hormone binding and cellular response may be regulated.