Insulin-dependent diabetes in rats is characterized by abnormalities of post-binding insulin signaling reactions that are not fully corrected by exogenous insulin therapy. The aim of this study was to investigate the effects of islet transplantation on insulin signaling in skeletal muscle and myocardium of streptozocin (STZ)-induced diabetic rats. Control rats, untreated diabetic rats, and diabetic rats transplanted with syngeneic islets under the kidney capsule were studied. Compared with controls, diabetic rats were characterized by multiple insulin signaling abnormalities in skeletal muscle, which included 1) increased insulin-stimulated tyrosine phosphorylation of the insulin receptor beta-subunit and insulin receptor substrates IRS-1 and IRS-2, 2) increased substrate tyrosine phosphorylation in the basal state, 3) a decreased amount of IRS-1 protein, 4) markedly elevated basal and insulin-stimulated phosphatidylinositol (PI) 3-kinase activity in anti-IRS-1 immunoprecipitates from total tissue extracts, and 5) increased PI 3-kinase activity in low-density microsomes. A similar augmentation of insulin receptor and substrate tyrosine phosphorylation in response to STZ-diabetes was also found in myocardium, although with lower magnitude than that found in skeletal muscle. In addition, STZ-diabetes resulted in decreased IRS-1 and increased IRS-2 protein levels in myocardium. Islet transplantation fully corrected the diabetes-induced changes in protein tyrosine phosphorylation and PI 3-kinase activity and normalized IRS-1 and IRS-2 protein content in both skeletal muscle and myocardium. Thus, insulin delivered into the systemic circulation by pancreatic islets transplanted under the kidney capsule can adequately correct altered insulin signaling mechanisms in insulinopenic diabetes.