Insulin activates the insulin receptor tyrosine kinase to phosphorylate signaling molecules such as insulin receptor substrate-1 (IRS-1). Phosphorylated IRS-1 binds to SH2 domains in the p85 regulatory subunit of phosphatidyl inositol (PI) 3-kinase, thereby stimulating the catalytic activity of PI 3-kinase. For most growth factor receptor tyrosine kinases (including receptors for epidermal growth factor and platelet-derived growth factor), the p85 regulatory subunit of PI 3-kinase binds directly to phosphorylated YXXM motifs contained in the cytoplasmic domain of the receptor itself. Previous studies in cell-free systems have shown that the phosphorylated YHTM sequence (amino acid residues 1322-1325) in the COOH terminus of the insulin receptor has the ability to bind to the p85 subunit of PI 3-kinase, thereby activating the enzyme. In this investigation, we demonstrate the occurrence of the same direct binding interaction in intact cells. Subsequent to insulin-stimulated phosphorylation of the insulin receptor, a complex is formed that contains the insulin receptor and PI 3-kinase. This complex can be immunoprecipitated by antibodies directed against either the insulin receptor or the p85 subunit of PI 3-kinase. The delta 43 mutant insulin receptor that lacks 43 amino acids at the COOH terminus does not bind p85. In addition, the delta 43 truncation impairs the ability of the receptor to mediate the activation of PI 3-kinase. Thus, by binding directly to p85, the phosphorylated YHTM motif in the COOH terminus of the insulin receptor contributes partially to mediating the effect of insulin to activate PI 3-kinase.