Insulin action leads to the rapid stimulation of a cytosolic Kemptide (Leu-Arg-Arg-Ala-Ser-Leu-Gly) kinase (KIK) that has been recently purified to near homogeneity (Klarlund, J. K., Bradford, A. P., Milla, M. G., and Czech, M. P. (1990) J. Biol. Chem. 265, 227-234). To examine its activation mechanism, purified KIK was treated with purified protein phosphatases. The catalytic subunit of phosphatase 2A inhibited the activity of control KIK by about 50% and abolished the 5-fold elevation in KIK activity due to insulin action. The catalytic subunit of phosphatase 1 with equivalent activity based on dephosphorylation of 32P-labeled phosphorylase alpha had no effect on either control or insulin-stimulated KIK activity. The deactivation of insulin-stimulated KIK by phosphatase 2A was time- and concentration-dependent and was blocked by phosphatase inhibitors. The purified native complexes of phosphatase 2A, phosphatase 2A1, and phosphatase 2A2 similarly deactivated KIK. Analyis of control or insulin-stimulated KIK with two antiphosphotyrosine antibodies by immunoblotting and immunoprecipitation failed to detect the presence of phosphotyrosine in the kinase. These results indicate that KIK is activated by phosphorylation as part of a kinase cascade emanating from insulin receptor stimulation.