BACKGROUND : Insulin and insulin-like growth factors (IGFs) signal through a highly conserved pathway and control growth and metabolism in both vertebrates and invertebrates. In mammals, insulin-like growth factor binding proteins (IGFBPs) bind IGFs with high affinity and modulate their mitogenic, anti-apoptotic and metabolic actions, but no functional homologs have been identified in invertebrates so far. RESULTS : Here, we show that the secreted Imaginal morphogenesis protein-Late 2 (Imp-L2) binds Drosophila insulin-like peptide 2 (Dilp2) and inhibits growth non-autonomously. Whereas over-expressing Imp-L2 strongly reduces size, loss of Imp-L2 function results in an increased body size. Imp-L2 is both necessary and sufficient to compensate Dilp2-induced hyperinsulinemia in vivo. Under starvation conditions, Imp-L2 is essential for proper dampening of insulin signaling and larval survival. CONCLUSION : Imp-L2, the first functionally characterized insulin-binding protein in invertebrates, serves as a nutritionally controlled suppressor of insulin-mediated growth in Drosophila. Given that Imp-L2 and the human tumor suppressor IGFBP-7 show sequence homology in their carboxy-terminal immunoglobulin-like domains, we suggest that their common precursor was an ancestral insulin-binding protein.