Vascular smooth muscle cells (SMC) maintained in high glucose are more responsive to insulin-like growth factor-I (IGF-I) than SMC maintained in normal glucose due to a difference in the Shc phosphorylation response. In this study we aimed to determine the mechanism by which glucose regulates the sensitivity of SMC to IGF-I. For Shc to be phosphorylated in response to IGF-I it must be recruited to tyrosine phosphorylated sites on SHP substrate-1 (SHPS-1). The association of integrin-associated protein (IAP) with SHPS-1 is required for SHPS-1 tyrosine phosphorylation. When SMC were grown in 5 mM glucose, the amount of intact IAP was reduced, compared to SMC grown in 25 mM glucose. This reduction was due to proteolytic cleavage of IAP. Proteolysis of IAP resulted in loss of its SHPS-1 binding site, which led to loss of SHPS-1 phosphorylation. Analysis of the conditioned medium showed that there was more protease activity in the medium from SMC cultured in 5 mM glucose as compared to 25 mM. Inhibition of MMP-2 synthesis using RNA interference or its activity using a specific protease inhibitor protected IAP from cleavage. This protection was associated with an increase in IAP-SHPS-1 association, increased recruitment and phosphorylation of Shc, and increased cell growth in response to IGF-I. Our results show that the enhanced response of SMC in 25 mM glucose to IGF-I is due to the protection of IAP from proteolytic degradation, thereby increasing its association with SHPS-1 and allowing the formation of the SHPS-1-Shc signaling complex.