Vascular smooth muscle cells maintained in normal (5.6 mm) glucose respond to insulin-like growth factor-I (IGF-I) with increased protein synthesis but do not proliferate. In contrast, hyperglycemia alters responsiveness to IGF-I, resulting in increased SHPS-1 phosphorylation and assembly of a signaling complex that enhances MAPK and phosphatidylinositol 3-kinase pathways. Hyperglycemia also reduces the basal IRS-1 concentration and IGF-I-stimulated IRS-1-linked signaling. To determine if failure to down-regulate IRS-1 alters vascular smooth muscle cell (VSMC) responses to IGF-I, we overexpressed IRS-1 in VSMCs maintained in high glucose. These cultures showed reduced SHPS-1 phosphorylation, transfer of SHP-2 to SHPS-1, and impaired Shc and MAPK phosphorylation and cell proliferation in response to IGF-I. In vitro studies demonstrated that SHPS-1 was a substrate for type I IGF receptor (IGF-IR) and that IRS-1 competitively inhibited SHPS-1 phosphorylation. Exposure of VSMC cultures to a peptide that inhibited IRS-1/IGF-IR interaction showed that IRS-1 binding to IGF-IR impairs SHPS-1 phosphorylation in vivo. IRS-1 also sequestered SHP-2. Expression of an IRS-1 mutant (Y1179F/Y1229F) reduced IRS-1/SHP-2 association, and exposure of cells expressing the mutant to the inhibitory peptide enhanced SHPS-1 phosphorylation and SHP-2 transfer. This result was confirmed by expressing an IRS-1 mutant that had both impaired binding to IGF-IR and to SHP-2 IGF-I increased SHPS-1 phosphorylation, SHP-2 association with SHPS-1, Shc MAPK phosphorylation, and proliferation in cells expressing the mutant. We conclude that IRS-1 is an important factor for maintaining VSMCs in the non-proliferative state and that its down-regulation is a component of the VSMC response to hyperglycemic stress that results in an enhanced response to IGF-I.