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In insulin-dependent diabetes mellitus there is a deficient post-prandial uptake of glucose and storage as glycogen in the liver. This impairment is due to an intrinsic hepatic defect that has been investigated with the use of isolated liver cells. Glycogen synthase catalyzes the rate-limiting step in the synthesis of glycogen. In response to an increased glucose concentration, this enzyme is activated in normal hepatocytes through dephosphorylation of seryl residues by a glycogen-bound "protein phosphatase G". Hepatocytes isolated from alloxan diabetes rats have lost the ability to activate glycogen synthase in response to an increased glucose concentration. The magnitude of the latter defect corresponds to the severity of the diabetes, as judged from the level of glycaemia. The defect is explained by an impaired function of protein phosphatase G. The latter enzyme consists of a catalytic subunit (37 kDa) associated with a large glycogen-binding subunit (161 kDa) and other regulatory polypeptides. It appears that in diabetes an essential regulatory subunit is deficient. Studies in animals with distinct types of spontaneous diabetes revealed that lack of insulin, rather than chronic hyperglycaemia, explains the deficient activity of protein phosphatase G.