We have investigated the fate of 125I-insulin after binding by rat hepatocytes. Approximately 30% of the bound radioactivity dissociated from the cells as intact 125I-insulin; approximately 56% dissociated as 125and 125I-Tyr. The remaining radioactivity was recovered as peptides that we postulate are intermediate products of insulin metabolism. Experiments were performed in the presence of chloroquine (0.1 mM), an agent known to inhibit the intracellular processing of 125I-insulin. As expected, chloroquine increased the amount of radioactivity recovered as intact 125I-insulin (P < 0.005) and decreased the amount of 125I- and 125I-Tyr (P < 0.005). In addition, chloroquine decreased the amount of one of the insulin peptides (P < 0.005), but increased the amount of the other (P < 0.01). These data suggest the presence of two pathways of insulin metabolism in rat hepatocytes, one of which is inhibited by chloroquine. We have found a second pathway by which insulin is degraded due to the removal of several amino acids from the carboxyterminus of the B-chain. The resulting fragment bound poorly to insulin receptors on IM-9 cultured human lymphocytes, and probably has little if any biologic activity. However, this fragment bound well to anti-insulin antibody and constituted about 20% of the immunoreactive radioactivity that dissociated from the hepatocytes.