SHPS-1 is a receptor-like protein that undergoes tyrosine phosphorylation and binds SHP-2, an SH2 domain-containing protein tyrosine phosphatase, in response to insulin and other mitogens. The overexpression of wildtype SHPS-1, but not of a mutant SHPS-1 in which all four tyrosine residues in its cytoplasmic region were mutated to phenylalanine, markedly enhanced insulin-induced activation of mitogen-activated protein kinase in Chinese hamster ovary cells that overexpress the human insulin receptor. Mutation of each tyrosine residue individually revealed that the major sites of tyrosine phosphorylation of SHPS-1 in response to insulin are Tyr(449) and Tyr(473). In addition, mutation of either Tyr(449) or Tyr(473) abolished the insulin-induced tyrosine phosphorylation of SHPS-1 and its association with SHP-2. Surface plasmon resonance analysis showed that glutathione S-transferase fusion proteins containing the NH2-terminal or COOH-terminal SH2 domains of SHP-2 bound preferentially to phosphotyrosyl peptides corresponding to the sequences surrounding Tyr(449) or Tyr(473) respectively, of SHPS-1. Furthermore, phosphotyrosyl peptides containing Tyr(449) or Tyr(473) were effective substrates for the phosphatase activity of recombinant SHP-2 in vitro. Together, these results suggest that insulin may induce phosphorylation of SHPS-1 at Tyr(449) and Tyr(473), to which SHP-2 then binds through its NH,terminal and COOH-terminal SH2 domains, respectively. SHPS-1 may play a crucial role both in the recruitment of SHP-2 from the cytosol to a site near the plasma membrane and in increasing its catalytic activity, thereby positively regulating the RAS-mitogen-activated protein kinase signaling cascade in response to insulin.