125I-Insulin binding to rat liver plasma membranes initiated two processes that occurred with similar time courses: an increase of receptor affinity for hormone and degradation of the Mr 135,000 alpha subunit of the insulin receptor to a fragment of Mr 120,000. Inhibitors of serine proteinases prevented alpha subunit degradation without affecting the affinity change. This shows that the change of affinity is not produced by receptor proteolysis and that the intact alpha subunit of the insulin receptor can exist as a higher or lower affinity species. Hormone binding was much more rapid than receptor proteolysis and the initial rate of alpha subunit degradation was independent of the concentration of occupied lower affinity receptors. Only persistent hormone binding and the accumulation of higher affinity insulin-receptor complexes led to significant receptor proteolysis. As the incubation time between 125I-insulin and membranes increased, the rate at which hormone dissociated from Mr 135,000 complexes diminished, whereas hormone dissociated from Mr 120,000 complexes slowly after brief or extended incubations. These observations suggest that 125I-insulin binds to membranes to form low affinity complexes that are not substrates for proteolysis. A slow conformational change produces higher affinity hormone-receptor complexes that are selectively degraded. Thus, the conversion between states of affinity may play a role in the regulation of receptor proteolysis and, consequently, insulin action in cells.