SHP-1 (also known as PTP1C, SHPTP-1, SHP, and HCP) is an SH2 domain-containing protein-tyrosine phosphatase. We have stably overexpressed the native form and a catalytically inactive cysteine to serine mutant of the enzyme, SHP-1-(Cys --> Ser), in human cervical carcinoma HeLa cells, Following stimulation of the cells with epidermal growth factor (EGF) and interferon-gamma (INF-gamma), signal transducers and activators of transcription (STAT) activity was analyzed by using two P-32-labeled DNA probes, namely hSIE which is derived from a high affinity mutant form of the serum-inducible element in the c-fos promotor and GAS which resembles the INF-gamma activation site, EGF induced hSIE binding activity only, and the activity was suppressed by similar to 70% when the inactive mutant. form of SHP-1 was expressed but was essentially unaffected by expression of the native enzyme. INF-gamma treatment resulted in appearance of both hSIE and GAS binding activities. While expression of the inactive mutant reduced the activities by 30-50%, the native enzyme caused a 20-30% increase. Consistent with effects on STAT activation, altered SHP-1 expression also affected EGF-induced activation of the mitogen-activated protein kinase pathway; expression of SHP-1-(Cys --> Ser) inhibited activity of MEK by similar to 25%, whereas expression of SHP-1 resulted in a similar to 25% increase. Further studies revealed that overexpression of SHP-1 caused decreased tyrosine phosphorylation of the EGF receptor and that EGF induced phosphorylation and recruitment of SHP-1. Together, the data suggest that SHP-1 is positively involved in EGF-and INF-gamma-induced STAT activation in non-hematopoietic HeLa cells and that, in the EGF signaling system, SHP-1 functions at least partly by modulating tyrosine phosphorylation of EGF receptor.