The phenotypic plasticity of mature vascular smooth muscle cells (VSMCs) facilitates angiogenesis and wound healing, but VSCM dedifferentiation also contributes to vascular pathologies such as intimal hyperplasia. Insulin/insulin-like growth factor I (IGF-I) is unique among growth factors in promoting VSMC differentiation via preferential activation of phosphatidylinositol 3-kinase (PI3K) and Akt. We have previously reported that rapamycin promotes VSMC differentiation by inhibiting the mammalian target of rapamycin (mTOR) target S6K1. Here, we show that rapamycin activates Akt and induces contractile protein expression in human VSMC in an insulin-like growth factor I-dependent manner, by relieving S6K1-dependent negative regulation of insulin receptor substrate-1 (IRS-1). In skeletal muscle and adipocytes, rapamycin relieves mTOR/S6K1-dependent inhibitory phosphorylation of IRS-1, thus preventing IRS-1 degradation and enhancing PI3K activation. We report that this mechanism is functional in VSMCs and crucial for rapamycin-induced differentiation. Rapamycin inhibits S6K1-dependent IRS-1 serine phosphorylation, increases IRS-1 protein levels, and promotes association of tyrosine-phosphorylated IRS-1 with PI3K. A rapamycin-resistant S6K1 mutant prevents rapamycin-induced Akt activation and VSMC differentiation. Notably, we find that rapamycin selectively activates only the Akt2 isoform and that Akt2, but not Akt1, is sufficient to induce contractile protein expression. Akt2 is required for rapamycin-induced VSMC differentiation, whereas Akt1 appears to oppose contractile protein expression. The anti-restenotic effect of rapamycin in patients may be attributable to this unique pattern of PI3K effector regulation wherein anti-differentiation signals from S6K1 are inhibited, but pro-differentiation Akt2 activity is promoted through an IRS-1 feedback signaling mechanism.