I have a 2001 Chevy 2500 4X4. Four wheel drive not working. Light on switch light up. Actuator on front axle working. Transfer case seems to shift to the low side in 4lo but does not spin front axle. With front end jacked up and in 4hi The tires spin by hand as well as front drive shaft. Tells me transfer case not engaging frint drive shaft. Where should I start looking?

The reason the light is flashing constantly is because the vehicle is sensing that four wheel drive(4WD) is not working. These 4WD systems use vacuum from the engine to engage/disengage to front axle. The vehicle probably has no vacuum going to the front axle, which would not allow the 4WD shift to complete, which would then leave the light on the dash flashing.
First thing to check is that the vacuum actuator on the firewall is working as it should.

Your best bet , take it to a qualified repair shop , before you replace more part's that arn't needed . Did you check to see if any DTC'S - diagnostic trouble code's are stored in the transfercase control module . Which transfer case does it have ? How many buttons on the instrument panel 4X4 switch ?
The NVG 236/246 transfer case features a 4 button shift control switch located on the instrument panel.
Do you know what a DTC is ?
DTC C0367
The front axle control circuit consists of an electric motor actuator which engages and disengages the front axle. The front axle actuator's motor consists of a Permanent Magnetic (PM) motor, a worm gear controlled plunger, a front axle switch and an electronic control circuit all within the actuator assembly.
The front axle actuator has four circuits connected to it, a front axle feed circuit, front axle ground circuit, front axle control circuit, and a front axle switch circuit.
Whenever a shift to AUTO 4WD, 4HI, or 4LO is requested, the automatic transfer case control module engages the front axle by grounding the front axle control circuit through a current limiting driver.
This DTC detects a shorted actuator, or a short to 12 V on the Front Axle Control Circuit.

Your vehicle can set a number of them .
DTC B2725
DTC C0300
DTC C0305
DTC C0308
DTC C0309
DTC C0310
DTC C0315
DTC C0323
DTC C0324
DTC C0327
DTC C0362
DTC C0367
DTC C0374
DTC C0376
DTC C0387
DTC C0550
DTC C0611
Without a professional scan tool an factory service repair info. you really shouldn't be trying anything , take it to a qualified repair shop.
The NVG 263 transfer case features a three button shift control switch located on the instrument panel.

New Venture Gear 263 Selectable Two Speed Transfer Case
The NVG 263 transfer case features a three button shift control switch located on the instrument panel. When the vehicle has the ignition key in the RUN position, the transfer case shift control module starts monitoring the transfer case shift control switch to determine if the driver desires a new mode/gear position. At a single press of the transfer case shift control switch, the lamp of the new desired position will begin flashing to inform the driver that the transfer case shift control module has received the request for a new mode/gear position. The lamp will continue to flash until all shifting criteria has been met and the new mode/gear position has been reached (or has been engaged). Once the new mode/gear position is fully active, the switch indicator lamp for the new position will remain ON constantly.

Your vehicle had option of two different 4x4 systems ,
New Venture Gear 263 Selectable Two Speed Transfer Case
The NVG 263 transfer case features a three button shift control switch located on the instrument panel. When the vehicle has the ignition key in the RUN position, the transfer case shift control module starts monitoring the transfer case shift control switch to determine if the driver desires a new mode/gear position. At a single press of the transfer case shift control switch, the lamp of the new desired position will begin flashing to inform the driver that the transfer case shift control module has received the request for a new mode/gear position. The lamp will continue to flash until all shifting criteria has been met and the new mode/gear position has been reached (or has been engaged). Once the new mode/gear position is fully active, the switch indicator lamp for the new position will remain ON constantly.
The NVG 263 transfer case provides the driver with 3 manual mode/gear positions:
• 2HI - 2 Wheel Drive high range
• 4HI - 4 Wheel Drive high range
• 4LO - 4 Wheel Drive low range
OR
The NVG 236/246 transfer case features a 4 button shift control switch located on the instrument panel. When the vehicle has the ignition key in the RUN position, the transfer case shift control module starts monitoring the transfer case shift control switch to determine if the driver desires a new mode/gear position. At a single press of the transfer case shift control switch, the lamp of the new desired position will begin flashing to inform the driver that the transfer case shift control module has received the request for a new mode/gear position. The lamp will continue to flash until all shifting criteria has been met and the new mode/gear position has been reached, or has been engaged. Once the new mode/gear position is fully active, the switch indicator lamp for the new position will remain ON constantly.
If there are problems with electronic part of the systems the shift control switch light will flash warning of a problem , If no lights you have a mechanical problem in the transfer case itself .
The front axle control circuit consists of an electric motor actuator which engages and disengages the front axle. The front axle actuator motor consists of a Permanent Magnetic (PM) motor, a worm gear controlled plunger, a front axle switch and an electronic control circuit all within the actuator assembly.
The front axle actuator has four circuits connected to it, a front axle feed circuit, front axle ground circuit, front axle control circuit and a front axle switch circuit.
Whenever a shift to AUTO 4WD, 4HI, or 4LO is requested, the transfer case shift control module engages the front axle by grounding the front axle control circuit through a current limiting driver. Test Description
The numbers below refer to the step numbers on the diagnostic table.
Tests the electrical function of the front axle actuator. Helps determine between mechanical and electrical malfunctions.
Tests for proper power and ground at the front axle actuator.
Tests the operation of the front axle control circuit.
Helps determine if the transfer case shift control module is able to monitor the front axle switch.
Tests the front axle switch circuit for an open or high resistance.
Measures the voltage between the front axle feed circuit and ground.
Tests the front axle control circuit for an open or high resistance.
Inspects the front axle for a mechanical malfunction.
Tests for open in the front axle feed circuit.

Hi Wayne how's it going ? Here is a Transfer Case Circuit Description ! then I will get into some possibility's of what could be wrong !
There are two main components for the four wheel drive. The powertrain control module (PCM) and the front drive axle actuator pump. The pump is controlled by the PCM. The pump compresses air to engage the front axle. When the transfer case is in four wheel drive (4H or 4L), the four wheel drive switch closes providing a ground signal to the PCM. The PCM actuates the pump which pressurizes the actuator in the front axle. This pressure engages the axle hub which connects the front drive shaft to the axle shafts, allowing the transmission/transfer case to turn the front wheels. The PCM will not operate the pump for more than 10 seconds in order to protect it. The PCM will also provide a path to ground for the 4WD indicator in the instrument cluster. The indicator is provided battery voltage when the ignition switch is in the ON or START position through the IG fuse. With power and ground supplied, the indicator lights.
When the transfer case is in 4L (with auto trans), the four wheel drive low switch sends a ground signal to the PCM. The PCM will not engage the torque converter clutch while this signal is being received.
When the transfer case is returned to the two wheel drive mode, the release valve in the pump opens and releases the pressure in the actuator. Without pressure, the hub disengages.The PCM also releases the ground to the 4WD indicator which causes the indicator to turn off.
Does the four-wheel drive indicator light with 4x4 engaged ? DEFINITION: The 4WD indicator does not illuminate with 4WD engaged. All other engine and transmission functions are normal. Refer to: Electric Motor and Actuator Check in Driveline/Axle-Front Axle (w/diff).
The next step of testing the electric motor an actuator involve a lot of steps an a special tool -
J 43846 Actuator Pressure Gauge
This a factor diagnostic flow chart , I'm not familiar with the in's an out's of this system , the most probable thing's that go wrong with this system. If you want I can send you the diagnostic flow chart !
Electric Motor and Actuator Check
Tools Required J 43846 Actuator Pressure Gauge

1. Raise the vehicle. Support the vehicle. Refer to Lifting and Jacking the Vehicle in General Information.
2. If the vehicle is equipped with an engine skid plate, remove the four bolts that hold the skid plate in place. Remove the front skid plate from the vehicle.
   
   
3. 
4. Install theJ 43846 with the air hose connecting between the air pump assembly and the front differential actuator.
5. Tighten the adjusting knob as far as it stops.
Important: Be careful not to bend any part of the hose.

6. Turn on the ignition switch and shift transfer lever from 2H to 4H range.
7. Make sure to check that the motor of the actuator starts running (a running sound can be heard) within 1 second and it stops when the actuator pressure gauge indicates specified pressure. Check for air leakage during the procedure. Pressure specification is: 38.0 kPa (5.40 -- 8.25 psi).
8. Check that the pressure indicated on the gauge drops as soon as the transfer lever is shifted to the 2H position.
9. Start the motor of the actuator pump by shifting the transfer lever to the 4H position again. Loosen the adjusting knob to lower the pressure on the gauge. The actuator motor should start to run again and stop in about 4 seconds.
10. With the adjusting knob of the actuator pressure gauge loosened, shift the transfer shift lever to neutral or the 2H position and then 4L or 4H position. Pump motor should stop in about 10 seconds after the motor starts to run.
    
    
11. 
12. Disconnect the air hose (2) from the actuator pump assembly and connect it the front differential air hose inlet. Loosen the adjusting knob.
13. Connect the air compressor air hose to the actuator pressure gauge.
14. Compress air into the actuator pressure gauge and turn knob to obtain specified pressure. Specified pressure : 38.0 kPa (5.40 psi)
15. While both wheels are lifted off the ground, turn one of the front wheels by hand and check the other wheel for the following:

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When applying pressure to the actuator pump the other front wheel should turn in the direction opposite to the wheel being turned by hand.

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When the actuator pump is not working (by not applying pressure) the other front wheel should remain stationary while the wheel turned by hand is turning.

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Install the actuator pressure gauge to the actuator pump assembly (1) .

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Install a voltmeter and the battery to the pump assembly (1) .

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Tighten the adjusting knob as far as it will stop and the air check side opening by a hose as a blind plug.

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Check that the actuator assembly motor starts to run (a running sound can be heard) when the battery is connected and when it stops when specified pressure is obtained. Specified pressure is: 38.0- 58.0 kPa (5.40 -- 8.25 psi).

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Ensure that the voltmeter is within specifications when the motor is running should be about 0v and when the motor has stopped it should be about 10 -- 14v
good luck !

There are 2 models here the push button will flash if the system is not engaging or disengaging properly . If front drive shaft is turning. That is with car raised and supported . if front drive axles do not turn then the axle actuator is not engaging axle shaft passenger side. Remove actuator and manually engage shifting collar with a screwdriver still does not turn then inner axle is twisted.

2 speed electric shift transfer case problems #1 jack up truck place on 4 jack stands. Start and select 4 high position in drive release brake ad watch front driveshaft does it turn "yes" problem is axle actuator on passenger side of differential not engaging axle shaft. "no" apply brakes bring to a stop engage low range does low range work "yes" internal transfer case problems "no" electric transfer case shifting motor failure.

there are 2 sensors 1 on transfer case and one on front axle if the light is lighting up than its most likley the front axle sensor if the light isnt lighting up than its the transfer case sensor. hope this helps

Check the 4WD fuse and the illumination fuse in the I/P fuse block. Also check the Transfer Case Switch and the Front Axle Actuator for a fault. I would say that the Front Axle Actuator is the most common failure. I think there is even an updated actuator asy available. Check with you local chevy dealer for price and availability.

On the full size, the front actuator is electric, not vacuum.

When in 4wd mode, a switch on top of the transfer case conducts 12 volts out to the actuator. Wire #50 (brown) is the 12v feed, and it conducts to the light blue wire (#900) to the actuator.
When shifted out of 4wd, the switch opens up and no voltage goes to the actuator.

Check voltage at the connector for the front actuator (at the front differential - it looks like a large bullet that threads into the front diff.) If it has 12 volts, the actuator is the problem. If it does not have 12 volts, check the transfer case switch and the power feed to the transfer case.

I'll assume it is the actuator, if the plug to the actuator is getting 12 volts when in 4wd.
The way this actuator works, is it is a sealed chamber that gets heated by voltage. When it heats, the pin in the end swells and pushes a shift fork in the front differential. The shift fork engages a spline on the passenger side of the differential, and boom! you have 4WD.

GM offered an upgrade to this actuator that is a motor instead of a heated device. However, it requires a small harness addition, a spacer, and a new actuator. It is about a $150 to $200 option.

If I were you, I would buy a new heated actuator. They are available at most auto parts stores, and are about $90. They are also on eBay for about $55 plus shipping. These are very easy to change - just thread out the old one, and thread in a new one.

Good luck, That actuator is usually the problem 90% of time.

You have to have your front hubs locked in for four-wheel drive to work