Insulin metabolism by isolated rat hepatocytes was studied, utilizing A14 [125I]monoiodoinsulin, [3H]PheB1 semisynthetic insulin, and [3H]insulins synthesized by rat islets. Degradation was assessed by gel filtration, polyacrylamide gel electrophoresis, precipitation by anti-insulin antibody, and binding to specific insulin receptors on IM-9 human lymphocytes. When incubations were performed at 15 degrees C or less, insulin bound to hepatocytes remained intact for up to 2 h. At 37 degrees C we detected the generation of an insulin fragment with an apparent molecular weight of approximately 5000 whose electrophoretic mobility was greater than that of insulin. The fragment bound well to anti-insulin antibodies but poorly to insulin receptors. Information about the structure of the fragment was obtained by comparing the metabolism of [3H]PheB1 semisynthetic insulin with that of [3H]PheB1,24,25 insulin. The data suggest that the fragment contains PheB1 but is missing the PheB24 and PheB25. Treatment of the fragment with trypsin and carboxypeptidase B did not affect its electrophoretic mobility indicating that the fragment is also missing ArgB22. Incubation in the presence of 0.1 mM chloroquine led to accumulation of both intact insulin and the insulin fragment, suggesting that both are degraded by lysosomes. The results of this study suggest the presence of two pathways for insulin degradation in liver: a chloroquine-insensitive pathway by which a portion of the B chain consisting of at least 10 amino acids is removed and a chloroquine-sensitive pathway by which both insulin and the fragment are degraded.