FcgammaRIIa is a low affinity IgG receptor uniquely expressed in human cells that promotes phagocytosis of immune complexes and induces inflammatory cytokine gene transcription. Recent studies have revealed that phagocytosis initiated by FcgammaRIIa is tightly controlled by the inositol phosphatase SHIP-1, and the protein-tyrosine phosphatase SHP-1. Whereas the molecular nature of SHIP-1 involvement with FcgammaRIIa has been well studied, it is not clear how SHP-1 is activated by FcgammaRIIa to mediate its regulatory effect. Here we report that FcgammaRIIa clustering induces SHP-1 phosphatase activity in THP-1 cells. Using synthetic phosphopeptides, and stable transfectants expressing immunoreceptor tyrosine-based activation motif ( ITAM) tyrosine mutants of FcgammaRIIa, we demonstrate that SHP-1 associates with the phosphorylated amino-terminal ITAM tyrosine of FcgammaRIIa, whereas the tyrosine kinase Syk associates with the carboxyl-terminal ITAM tyrosine. Association of SHP-1 with FcgammaRIIa ITAM appears to suppress total cellular tyrosine phosphorylation. Furthermore, FcgammaRIIa clustering results in the association of SHP-1 with key signaling molecules such as Syk, p85 subunit of PtdIns 3-kinase, and p62dok, suggesting that these molecules may be substrates of SHP-1 in this system. Finally, overexpression of wild-type SHP-1 but not catalytically deficient SHP-1 led to a down-regulation of NFkappaB-dependent gene transcription in THP-1 cells activated by clustering FcgammaRIIa.