Tumor necrosis factor-alpha (TNF-alpha) is an important mediator of insulin resistance in obesity and diabetes through its ability to decrease the tyrosine kinase activity of the insulin receptor (IR). Treatment of cultured murine adipocytes with TNF-alpha was shown to induce serine phosphorylation of insulin receptor substrate 1 (IRS-1) and convert IRS-1 into an inhibitor of the IR tyrosine kinase activity in vitro. Myeloid 32D cells, which lack endogenous IRS-1, were resistant to TNF-alpha-mediated inhibition of IR signaling, whereas transfected 32D cells that express IRS-1 were very sensitive to this effect of TNF-alpha. An inhibitory form of IRS-1 was observed in muscle and fat tissues from obese rats. These results indicate that TNF-alpha induces insulin resistance through an unexpected action of IRS-1 to attenuate insulin receptor signaling.