SHP-1 (Src homology 2 domain containing protein tyrosine phosphatase) is a known negative regulator of insulin signaling and inflammation. To date, the molecular mechanism of metformin in modulating SHP-1 expression has remained elusive. In the present study, we have investigated the role of SHP-1 in relation to anti-hyperglycemic and anti-inflammatory actions of metformin in an obese phenotype mouse model. We observed that metformin treatment significantly reduced SHP-1 activity in obese mice, leading to improved insulin sensitivity. Additionally, metformin down regulated inflammatory markers like TLR2, TLR4, CD80, CD86, NF-kappa B, STAT1 and suppressed adipose tissue inflammation by efficiently polarizing adipose tissue macrophages toward anti-inflammatory state by way of indirect inhibition of SHP-1 mRNA and protein expressions. Our study suggests that metformin exerts its insulin sensitizing effects via inhibition of SHP-1 activity and expression. (C) 2017 Elsevier Inc. All rights reserved.