Ligation of the T cell antigen receptor (TCR) activates the Src family tyrosine kinase p56 Lck, which, in turn, phosphorylates a variety of intracellular substrates. The phosphatidylinositol 3-kinase (PI3K) and the tyrosine phosphatase SHP-1 are two Lck substrates that have been implicated in TCR signaling. In this study, we demonstrate that SHP-1 co-immunoprecipitates with the p85 regulatory subunit of PI3K in Jurkat T cells, and that this association is increased by ligation of the TCR complex. Co-expression of SHP-1 and PI3K with a constitutively activated form of Lck in COS7 cells demonstrated the carboxyl-terminal SH2 domain of PI3K to inducibly associate with the full-length SHP-1 protein. By contrast, a truncated SHP-1 mutant lacking the Lck phosphorylation site (Tyr(564)) failed to bind p85. Wild-type but not catalytically inactive SHP-1 induced dephosphorylation of p85. Furthermore, expression of SHP-1 decreased PI3K enzyme activity in anti-phosphotyrosine immunoprecipitates and phosphorylation of serine 473 in Akt, a process dependent on PI3K activity. These results indicate the presence of a functional interaction between PI3K and SHP-1 and suggest that PI3K signaling, which has been implicated in cell proliferation, apoptosis, cytoskeletal reorganization, and many other biological activities, can be regulated by SHP-1 in T lymphocytes.