The effect of bacitracin on the binding and processing of 125I-labeled insulin was studied in a proximal tubular epithelium-like opossum kidney cell line. This cultured cell line handles insulin in a manner comparable to the in vivo situation, which requires membrane binding, internalization, and intracellular degradation. The addition of bacitracin inhibited insulin degradation significantly and delayed the time of appearance of products in the medium (22 min) compared with control cells (14 min). Maximum total cell-associated radioactivity increased from 1.5 ± 0.19% in the control cells to 2.5 ± 0.17% in the treated cells. Separation of cell membrane from internalized radioactivity was achieved by acid washing and showed no change in membrane-bound radioactivity or rate of internalization, but a significant increase in intracellular radioactivity was noted. Gel-filtration chromatography revealed that this was due to an accumulation of chromatographically intact insulin. Accordingly, we conclude that bacitracin inhibits insulin degradation in cultured kidney cells by perturbing the intracellular processing of insulin, not by altering the binding or internalization of the hormone or by inhibiting the release of small degradation products. Because of the multiple actions of this agent, the exact site in these kidney cells at which intracellular degradation is inhibited remains to be established. However, in contrast to studies with lysosomes isolated from cells of other tissues, this study showed that when lysosomes isolated from rat renal cortex were exposed to bacitracin, insulin degradation was inhibited markedly (81%).