The protein tyrosine phosphatase Shp2 is a positive regulator of growth factor signaling. Gain-of-function mutations in several types of leukemia define Shp2 as a bona fide oncogene. We performed a high-throughput in silico screen for small-molecular-weight compounds that bind the catalytic site of Shp2. We have identified the phenylhydrazonopyrazolone sulfonate PHPS1 as a potent and cellpermeable inhibitor, which is specific for Shp2 over the closely related tyrosine phosphatases Shp1 and PTP1B. PHPS1 inhibits Shp2-dependent cellular events such as hepatocyte growth factor/scatter factor (HGF/SF)-induced epithelial cell scattering and branching morphogenesis. PHPS1 also blocks Shp2-dependent downstream signaling, namely HGF/SF-induced sustained phosphorylation of the Erk1/2 MAP kinases and dephosphorylation of paxillin. Furthermore, PHPS1 efficiently inhibits activation of Erk1/2 by the leukemia-associated Shp2 mutant, Shp2-E76K, and blocks the anchorage-independent growth of a variety of human tumor cell lines. The PHPS compound class is therefore suitable for further development of therapeutics for the treatment of Shp2-dependent diseases.chemical biology ͉ growth factor signaling ͉ phosphatase inhibition ͉ virtual drug screening