The insulin receptor substrate 1 (IRS1) is a protein that is rapidly phosphorylated on tyrosine by the activated insulin receptor. Syp is a recently discovered, broadly expressed phosphotyrosine (Tyr(P)) phosphatase that contains two Src homology 2 (SH2) domains. We have found that insulin treatment of 3T3-L1 adipocytes leads to complex formation between IRS1 and Syp. Syp was detected in immunoadsorbates of IRS1 from extracts of insulin-treated but not basal cells by both immunoblotting and Tyr(P) phosphatase activity. The association of Syp with IRS1 apparently occurs between the SH2 domains of Syp and Tyr(P)-containing sequences of IRS1, since a fusion protein containing only the SH2 domains of Syp bound the Tyr(P) form of IRS1. Unlike the receptors for epidermal and platelet-derived growth factors, which in their activated state bind to the SH2 domains of Syp and elicit phosphorylation of Syp on tyrosine in intact cells, the Tyr(P) form of the insulin receptor did not bind to the SH2 domains of Syp, and no phosphorylation of Syp on tyrosine was detected in insulin-treated 3T3-L1 adipocytes. In combination with other findings these results indicate that IRS1 functions as a docking protein for SH2 domain-containing proteins participating in signaling from the insulin receptor.