Activation of the cellular Src tyrosine kinase depends upon dephosphorylation of the carboxyl-terminal inhibitory tyrosine phosphorylation site. Herein we show that Src isolated from human platelets and Jurkat T cells is preferentially dephosphorylated at its inhibitory phosphotyrosine site by the SHP-1 tyrosine phosphatase. The data also revealed association of Src with SHP-1 in both platelets and lymphocytes and the capacity of Src to phosphorylate SHP-1 and interact with the SHP-1 NH 2 -terminal SH2 domain in vitro. Analysis of Src activity in thymocytes from SHP-1-deficient motheaten and viable motheaten mice revealed this kinase activity to be substantially lower than that detected in wild-type thymocytes, but to be enhanced by in vitro exposure to SHP-1. Similarly, immunoblotting analysis of thymocyte Src expression before and after selective depletion of active Src protein indicated that the proportion of active relative to inactive Src protein is markedly reduced in motheaten compared with wild-type cells. These observations, together with the finding of reduced Src activity in HEY cells expressing a dominant negative form of SHP-1, provide compelling evidence that SHP-1 functions include the positive regulation of Src activation.Both the kinase and transforming activities of the pp60 c-src (Src) protein-tyrosine kinase (PTK) 1 are repressed by phosphorylation of a tyrosine residue within the Src carboxyl terminus (1-5). The negative regulatory effect of this phosphotyrosine (Tyr-530 and Tyr-529 in human and murine Src, respectively) has been ascribed to its association with the Src SH2 domain and consequent SH2, as well as SH3 domain-mediated intramolecular interactions that repress activity of the kinase domain (6 -8). The catalytic activities of the other Src family members are similarly inhibited by phosphorylation of this conserved C-tail tyrosine (9), and activation of each of these PTKs thus depends on dephosphorylation at this site. However, while several lines of evidence implicate the Csk tyrosine kinase (10 -12) as well as Src-mediated autophosphorylation (13) in the phosphorylation of the COOH-terminal regulatory tyrosine, relatively little is known about the mechanisms whereby this inhibitory phosphotyrosine residue is dephosphorylated and Src activation achieved. In contrast to the Src-related Lck and possibly Fyn PTKs, the Src COOH-terminal phosphotyrosine does not appear subject to dephosphorylation by the transmembrane protein-tyrosine phosphatase (PTP), CD45 (14 -16). Moreover, while Src activity has been found to be increased in rodent cell lines overexpressing the receptor-like protein-tyrosine phosphatase, RPTP␣ (17, 18), a direct role for this PTP in dephosphorylating Tyr-529 in vivo has not been established. However, recent data from studies of the SHP-1 tyrosine phosphatase, a cytosolic, dual SH2 domain-containing protein expressed primarily in hemopoietic and epithelial cells (19 -22), have raised the possibility that this PTP plays a role in the dephosphorylation and activation ...