By regulating the amount of protein receptors on the cell membrane and the metabolisms of receptor-bound ligands, endocytosis represents one of the fundamental biological activities that regulate how cells respond to the environment. We report here that a Fab1-YotB-Vac1p-EEA1 (FYVE) domain-containing lipid associated protein, called Phafin2, is preferentially expressed in the human hepatocellular carcinoma (HCC) and is involved in the biogenesis of endosomes. Over-expression of Phafin2 or its FYVE domain results in the formation of enlarged endosomes that are still functional for endocytosis: the biogenesis of such abnormal organelles is mediated by phosphoinositide 3-kinases (PI3K) and Rab5 signaling. Using fluorescence resonance energy transfer measured by fluorescence lifetime imaging microscopy (FLIM-FRET), we further demonstrate in live cells that Phafin2 can directly activate Rab5. By modulating the receptor internalization/recycling and Rab5 activation, Phafin2 affects the density of membranous insulin receptors. and regulates the transcriptional activity of AP-1 that is downstream of the insulin signaling pathway. These results provide a vivid example that an endosome modulator, such as Phafin2, may control the cells' responses to the extracellular cues. (C) 2009 Published by Elsevier Inc.