Binding of insulin to its receptor (IR) causes rapid autophosphorylation with concomitant activation of its tyrosine kinase which transmits the signal by phosphorylating cellular substrates. The IR activity is controlled by protein-tyrosine phosphatases, but those directly involved in regulating the insulin receptor and its signaling pathways have not yet been identified. Using baby hamster kidney cells overexpressing the IR and a novel insulin-based selection principle, we established stable cell lines with functionally coupled expression of the IR and protein-tyrosine phosphatases. The two closely related protein-tyrosine phosphatases alpha and epsilon were identified as negative regulators of IR tyrosine kinase.