Shp-2 is a widely expressed cytoplasmic tyrosine phosphatase with two SH2 domains, A targeted mutant allele of the Shp-2 gene with a deletion of 65 amino acids in the NH2-terminal SH2 domain was created that leads to embryonic lethality at mid-gestation in homozygous mutant mice, To define the Shp-2 function in cell signaling, we have established mutant fibroblast cell lines, and have examined the effect of the Shp-2 mutation on extracellular signal-regulated kinase (ERK) and c-Jun NH2-terminal kinase (JNK) mitogen-activated protein (MAP) kinase pathways, Insulin-like growth factor (IGF)-I-induced ERK activation was completely abolished, while ERK activity upon platelet-derived growth factor and epidermal growth factor stimulation was significantly reduced and shortened in mutant cells. Stimulation of ERK by phorbol la-myristate 13-acetate was not affected in mutant cells, but the phorbol 12-myristate Is-acetate induced ERK activity decayed much faster compared with that in wild-type cells, In contrast, JNK activation upon heat shock was significantly enhanced in Shp-2 mutant cells, Based on these results, we conclude that Shp-2 plays differential positive regulatory roles in various mitogenic signaling pathways leading to ERK activation, and that Shp-2 is a negative effector in JNK activation by cellular stress, This is the first evidence that a tyrosine phosphatase has opposite effects in mediating the activation of ERK and JNK MAP kinases.