To assess the role of insulin action and inaction in the liver, immortalized hepatocyte cell lines have been generated from insulin receptor substrate (IRS)‐2^−/− and wild‐type mice. Using this model, we have recently demonstrated that the lack of IRS‐2 in neonatal hepatocytes resulted in insulin resistance. In the current study, we show that immortalized neonatal hepatocytes undergo apoptosis on serum withdrawal, with caspase‐3 activation and DNA laddering occurring earlier in the absence of IRS‐2. Insulin rescued wild‐type hepatocytes from serum withdrawal‐induced caspase‐3 activation and DNA fragmentation in a dose‐dependent manner, but it failed to rescue hepatocytes lacking IRS‐2. In IRS‐2^−/− cells, insulin failed to phosphorylate Bad. Furthermore, in these cells, insulin was unable to translocate Foxo1 from the nucleus to the cytosol. Adenoviral infection of wild‐type cells with constitutively active Foxo1 (ADA) induced caspase‐8 and caspase‐3 activities, proapoptotic gene expression, DNA laddering and apoptosis. Dominant negative Foxo1 regulated the whole pathway in an opposite manner. Prolonged insulin treatment (24 hours) increased expression of antiapoptotic genes (Bcl‐x_L), downregulated proapoptotic genes (Bim and nuclear Foxo1), and decreased caspase‐3 activity in wild‐type hepatocytes but not in IRS‐2^−/− cells. Infection of IRS‐2^−/− hepatocytes with adenovirus encoding IRS‐2 reconstituted phosphatidylinositol 3‐kinase (PI 3‐kinase)/Akt/Foxo1 signaling, restored pro‐ and antiapoptotic gene expression, and decreased caspase‐3 activity in response to insulin, thereby blocking apoptosis. In conclusion, IRS‐2 signaling is specifically required through PIP3 generation to mediate the survival effects of insulin. Epidermal growth factor, via PIP3/Akt/Foxo1 phosphorylation, was able to rescue IRS‐2^−/− hepatocytes from serum withdrawal‐induced apoptosis, modulating pro‐ and anti‐apoptotic gene expression and downregulating caspase‐3 activity. Supplementary material for this article can be found on the HEPATOLOGY website (http://interscience.wiley.com/jpages/0270‐9139/suppmat/index.html). (HEPATOLOGY 2004;40:1285‐1294.)