Insulin resistance is thought to be the primary defect in the pathophysiology of type 2 diabetes. Thus, understanding the cellular mechanisms of insulin action may contribute significantly to developing new treatments for this disease. Although the effects of insulin on glucose and lipid metabolism are well documented, gaps remain in our understanding of the precise molecular mechanisms of signal transduction for the hormone. One potential clue to understanding the unique cellular effects of insulin may lie in the compartmentalization of signaling molecules and metabolic enzymes. We review this evidence, and speculate on how PI‐3 kinase‐independent and ‐dependent signaling pathways both diverge from the insulin receptor and converge at discrete targets to insure the specificity of insulin action. BioEssays 23:215–222, 2001. © 2001 John Wiley & Sons, Inc.