Plasma membrane-associated sialidase is a key enzyme for ganglioside hydrolysis, thereby playing crucial roles in regulation of cell surface functions. Here we demonstrate that mice overexpressing the human ortholog (NEU3) develop diabetic phenotype by 18-22 weeks associated with hyperinsulinemia, islet hyperplasia, and increased beta-cell mass. As compared with the wild type, insulin-stimulated phosphorylation of the insulin receptor (IR) and insulin receptor substrate I was significantly reduced, and activities of phosphatidylinositol 3-kinase and glycogen synthase were low in transgenic muscle. IR phosphorylation was already attenuated in the younger mice before manifestation of hyperglycemia. Transient transfection of NEU3 into 3T3-L1 adipocytes and L6 myocytes caused a significant decrease in IR signaling. In response to insulin, NEU3 was found to undergo tyrosine phosphorylation and subsequent association with the Grb2 protein, thus being activated and causing negative regulation of insulin signaling. In fact, accumulation of GM1 and GM2, the possible sialidase products in transgenic tissues, caused inhibition of IR phosphorylation in vitro, and blocking of association with Grb2 resulted in reversion of impaired insulin signaling in L6 cells. The data indicate that NEU3 indeed participates in the control of insulin signaling, probably via modulation of gangliosides and interaction with Grb2, and that the mice can serve as a valuable model for human insulin-resistant diabetes.