A recombinant proinsulin-transferrin fusion protein (ProINS-Tf) has been previously reported to be a novel long-lasting INS analog, acting specifically on the inhibition of hepatic glucose output. In this study, we investigated the biodistribution, activation and tissue retention of ProINS-Tf to elucidate its liver targeted anti-diabetic mechanism. The biodistribution study revealed that ProINS-Tf exhibited liver specific accumulation after a single intravenous injection, whereas transferrin (Tf) or insulin (INS) showed relatively even distribution among different organs. The conversion of inactive ProINS-Tf into an active immune-reactive INS-Tf form (irINS-Tf) via a Tf receptor (TfR) mediated process only occurred in the liver, but not in other organs. In addition, ProINS-Tf demonstrated a prolonged retention in the liver after an intravenous injection, suggesting the enhanced association of the bifunctional active form, irINS-Tf, within liver cells. Taken together, our results indicate that ProINS-Tf is a highly liver-targeted INS prodrug with a combination of 3 specific actions in liver cells: (1) TfR-mediated binding and uptake of the prodrug on the cell surface, (2) liver-specific, TfR-mediated conversion of the prodrug into its active form, and (3) the bifunctional binding of the active fusion protein to both Tf and INS receptors in the liver to achieve prolonged retention and thus enhanced anti-diabetic activities.