The protein-tyrosine phosphatase SHP-1 has been shown to be a negative regulator of multiple signaling pathways in hematopoietic cells. In this study, we demonstrate that SHP-1 dephosphorylates the lymphoid-specific Src family kinase Lck at Tyr-394 when both are transiently co-expressed in nonlymphoid cells. We also demonstrate that a GST-SHP-1 fusion protein specifically dephosphorylates Lck at Tyr-394 in vitro. Because phosphorylation of Tyr-394 activates Lck, the fact that SHP-1 specifically dephosphorylates this site suggests that SHP-1 is a negative regulator of Lck. The failure of SHP-1 to inactivate Lck may contribute to some of the lymphoid abnormalities observed in motheaten mice.