PayPal is not FDIC insured. But if you choose to have your cash balance at PayPal invested in the PayPal Money Market Account, it is now guaranteed by the US Govt as part of the recent actions taken to increase investor confidence.

See the link below which applies to all US interest paying mm accounts.

I have invested in this mm account for several years now and have received over $1000 in interest. You currently get about 2% interest on your balance; it used to be considerably higher. Here is a link to the money market account prospectus:

https://www.paypalobjects.com/WEBSCR-540-20081021-1/en_US/pdf/PayPal_Prospectus.pdf