Here, we demonstrate that insulin receptor (IR) tyrosine kinase catalyzes Tyr-19 and Tyr-27 phosphorylation of caveolin-2 (cav-2), leading to stimulation of signaling proteins downstream of IR, and that the catalysis is dependent on fatty acylation status of cav-2, promoting its interaction with IR. Cav-2 is myristoylated at Gly-2 and palmitoylated at Cys-109, Cys-122, and Cys-145. The fatty acylation deficient mutants are unable to localize in the plasma membrane and not phosphorylated by IR tyrosine kinase. IR interacts with the C-terminal domain of cav-2 containing the cysteines for palmitoylation. IR mutants, Y999F and K1057A, but not W1220S, fail interaction with cav-2. Insulin receptor substrate-1 (IRS-1) is recruited to interact with the IR-catalyzed phospho-tyrosine cav-2, which facilitates IRS-1 association with and activation by IR to initiate IRS-1-mediated downstream signaling. Cav-2 fatty acylation and tyrosine phosphorylation are necessary for the IRS-1-dependent PI3K-Akt and ERK activations responsible for glucose uptake and cell survival and proliferation. In conclusion, fatty acylated cav-2 is a new substrate of IR tyrosine kinase, and the fatty acylation and phosphorylation of cav-2 present novel mechanisms by which insulin signaling is activated.