Insulin stimulates the appearance of anti-tyrosine(P)-immunoprecipitable phosphatidylinositol 3-kinase (PI 3-kinase) activity in adipocytes, predominantly in an intracellular membrane fraction (Kelly, K. L., Ruderman, N. B., and Chen, K. S. (1992) J. Biol. Chem. 267, 3423-3428). Neither the mechanism underlying this activation nor the precise subcellular compartment in which it occurs is known. To address these questions, studies were performed using isolated rat adipocytes and subcellular fractions of these cells. In intact cells, insulin stimulated the rapid appearance of phosphatidylinositol 3,4-bisphosphate and phosphatidylinositol 3,4,5-trisphosphate in 32P-labeled adipocytes without changing the labeling of phosphatidylinositol 3-phosphate, phosphatidylinositol 4-phosphate, or phosphatidylinositol 4,5-bisphosphate. This effect was accompanied by the tyrosyl phosphorylation of a 185-kDa protein, tentatively identified as IRS-1, with which PI 3-kinase became associated. The majority of the p85, the regulatory subunit of PI 3-kinase, in untreated adipocytes was present in the cytosol; however, neither the activity of PI 3-kinase nor the total amount of p85 in this fraction was modified in response to insulin. In contrast, insulin increased the association of p85 with IRS-1, the tyrosyl phosphorylation of the IRS-1 associated with p85, and the total activity of PI 3-kinase in the plasma membranes and low density membranes. After insulin treatment, similar amounts of p85 were bound to IRS-1 in the low density and plasma membrane fractions; however, tyrosyl-phosphorylated IRS-1 and PI 3-kinase activity were an order of magnitude greater in the low density membranes. The complex of tyrosyl-phosphorylated IRS-1.p85 that formed in response to insulin was localized to a very low density vesicle subpopulation that could be distinguished from vesicles containing the GLUT-4 glucose transporter and the insulin receptor. These data suggest that the activation of PI 3-kinase by insulin in the adipocyte involves the formation of a complex between IRS-1 and PI 3-kinase in a very low density membrane fraction that is not enriched in GLUT-4 or insulin receptors. They also suggest that PI 3-kinase activation correlates more closely with the extent of tyrosyl phosphorylation of the IRS-1 complexed to PI 3-kinase than it does to the amount of p85 bound to IRS-1.