Shc is phosphorylated on Tyr-317, which serves as a docking site for Grb2. To investigate the specific role of Shc phosphorylation and Shc.Grb2 coupling on insulin signaling, we generated expression vectors for wild-type (WT-Shc) and a mutant Shc with a Tyr-317 --> Phe substitution (317Y/F-Shc) and stably transfected them into Rat1 fibroblasts expressing insulin receptors (HIRc). From different clonal cell lines, cells expressing 10 times greater amounts of WT-Shc or 317Y/F-Shc compared with endogenous Shc were chosen for analysis of insulin signaling. Insulin-induced Shc phosphorylation and subsequent association with Grb2 was enhanced in WT-Shc cells. Because of competition between Shc and IRS-1 for interaction with the insulin receptor, insulin-stimulated tyrosine phosphorylation of IRS-1 was decreased in WT-Shc cells compared with that in HIRc cells. Likewise, reduction of endogenous Shc expression by antisense Shc mRNA resulted in increased insulin stimulation of IRS-1 phosphorylation. Although 317Y/F-Shc was also able to interact with insulin receptor, decreased amounts of Shc phosphorylation and Shc association with Grb2 were observed in 317Y/F-Shc cells, indicating that 317Y/F-Shc functions as a dominant-negative mutant. The kinetics of mitogen-activated protein (MAP) kinase activation closely paralleled the kinetics of Shc phosphorylation. Thus, insulin stimulation of MAP kinase activation occurred more rapidly and was prolonged in WT-Shc cells, while the activation was delayed and transient in 317Y/F-Shc cells compared with that in HIRc cells. Importantly, WT-Shc cells displayed enhanced sensitivity to insulin stimulation of thymidine and bromodeoxyuridine incorporation, whereas the sensitivity was decreased in 317Y/F-Shc cells. These results indicate that Shc Tyr-317 phosphorylation plays an important role, via coupling with Grb2 and competition with IRS-1, in signal transduction to MAP kinase by insulin, ultimately leading to mitogenesis in Rat1 fibroblasts.