To assess the role of insulin receptor (IR) substrate (IRS)-2 in insulin action and resistance in the liver, immortalized neonatal hepatocyte cell lines have been generated from IRS-2(-/-), IRS-2(+/-), and wild-type mice. These cells maintained the expression of the differentiated liver markers albumin and carbamoyl phosphate synthetase, as well as bear a high number of IRs. The lack of IRS-2 did not result in enhanced IRS-1 tyrosine phosphorylation or IRS-1-associated phosphatidylinositol (PI) 3-kinase activity on insulin stimulation. Total insulin-induced PI 3-kinase activity was decreased by 50% in IRS-2(-/-) hepatocytes, but the translocation of PI-3,4,5-trisphosphate to the plasma membrane in these cells was almost completely abolished. Downstream PI 3-kinase, activation of Akt, glycogen synthase kinase (GSK)-3 (alpha and beta isoforms), Foxo1, and atypical protein kinase C were blunted in insulin-stimulated IRS-2(-/-) cells. Reconstitution of IRS-2(-/-) hepatocytes with adenoviral IRS-2 restored activation of these pathways, demonstrating that IRS-2 is essential for functional insulin signaling in hepatocytes. Insulin induced a marked glycogen synthase activity in wild-type and heterozygous primary hepatocytes; interestingly, this response was absent in IRS-2(-/-) cells but was rescued by infection with adenoviral IRS-2. Regarding gluconeogenesis, the induction of phosphoenolpyruvate carboxykinase and glucose 6-phosphatase by dibutyryl cAMP and dexamethasone was observed in primary hepatocytes of all genotypes. However, insulin was not able to suppress gluconeogenic gene expression in primary hepatocytes lacking IRS-2, but when IRS-2 signaling was reconstituted, these cells recovered this response to insulin. Suppression of gluconeogenic gene expression in IRS-2-deficient primary hepatocytes was also restored by infection with dominant negative Delta 256Foxo1.