We present the local linear stability analysis of rotating jets confined by a toroidal magnetic field. Under the thin flux tube approximation, we derive the equation of motion for slender magnetic flux tubes. In addition to the terms responsible for the conventional instability of the toroidal magnetic field, a term related to the magnetic buoyancy and a term corresponding to the differential rotation become relevant for the stability properties. We find that the rigid rotation stabilizes while the differential rotational destabilizes the jet in a way similar to the Balbus–Hawley instability. Within the frame of our local analysis, we find that if the azimuthal velocity is of the order of or higher than the Alfvén azimuthal speed, the rigidly rotating part of the jet interior can be completely stabilized, while the strong shearing instability operates in the transition layer between the rotating jet interior and the external medium. This can explain the limb-brightening effect observed in several jets. However, it is still possible to find jet equilibria that are stable all across the jet, even in the presence of differential rotation. We discuss observational consequences of these results.