My laboratory discovered a proteolytic mechanism that regulates glucose uptake in fat and muscle. In these cell types, insulin stimulates glucose uptake by translocating GLUT4 glucose transporters from internal membranes to the cell surface. We used a functional screen to identify the TUG protein as a critical regulator of GLUT4 targeting, which limits cell-surface GLUT4 and glucose uptake in cells not stimulated with insulin. TUG traps GLUT4 in non-endosomal vesicles, bound at the Golgi matrix, and insulin triggers endoproteolytic cleavage of TUG to liberate these vesicles for translocation to the cell surface. GLUT4 and other vesicle cargos are then maintained at the cell surface by cycling through endosomes, and they bypass a TUG-regulated compartment until insulin signaling is terminated and the cargos are re-sequestered. This arrangement obviates the need for ongoing TUG cleavage during sustained insulin exposure. TUG cleavage generates a product that functions as a novel ubiquitin-like protein modifier, implicating new enzymatic activities in insulin action. In mice, this proteolytic pathway controls glucose metabolism and energy expenditure, and data imply that vesicle cargos other than GLUT4 may contribute to the regulation of vasopressin action and lipid metabolism. Thus, our results support the idea that regulated TUG cleavage and vesicle translocation may coordinate distinct physiologic outputs and that dysregulation of this pathway may contribute to multiple aspects of the metabolic syndrome.