Non-small cell lung cancer (NSCLC) cells harboring activating mutations of the epidermal growth factor receptor (EGFR) tend to display elevated activity of several survival signaling pathways. Surprisingly, these mutations also correlate with reduced phosphorylation of ERK and SHP2, a protein tyrosine phosphatase required for complete ERK activation downstream of most receptor tyrosine kinases. As ERK activity influences cellular response to EGFR inhibition, altered SHP2 function could have a role in the striking response to gefitinib witnessed with EGFR mutation. Here, we demonstrate that impaired SHP2 phosphorylation correlates with diminished SHP2 function in NSCLC cells expressing mutant, versus wild-type, EGFR. In NSCLC cells expressing wild-type EGFR, SHP2 knockdown decreased ERK phosphorylation, basally and in response to gefitinib, and increased cellular sensitivity to gefitinib. In cells expressing EGFR mutants, these effects of SHP2 knockdown were less substantial, but the expression of constitutively active SHP2 reduced cellular sensitivity to gefitinib. In cells expressing EGFR mutants, which do not undergo efficient ligand-mediated endocytosis, SHP2 was basally associated with GRB2-associated binder 1 (GAB1) and EGFR, and SHP2's presence in membrane fractions was dependent on EGFR activity. Whereas EGF promoted a more uniform intracellular distribution of initially centrally localized SHP2 in cells expressing wild-type EGFR, SHP2 was basally evenly distributed and did not redistribute in response to EGF in cells with EGFR mutation. Thus, EGFR mutation may promote association of a fraction of SHP2 at the plasma membrane with adapters that promote SHP2 activity. Consistent with this, SHP2 immunoprecipitated from cells with EGFR mutation was active, and EGF treatment did not change this activity. Overall, our data suggest that a fraction of SHP2 is sequestered at the plasma membrane in cells with EGFR mutation in a way that impedes SHP2's ability to promote ERK activity and identify SHP2 as a potential target for co-inhibition with EGFR in NSCLC.