The nontransmembrane protein tyrosine phosphatase SHP-2 plays a critical role in growth factor and cytokine signaling pathways. Previous studies revealed that a fraction of SHP-2 moves to focal contacts upon integrin engagement and that SHP-2 binds to SHP substrate 1 (SHPS-1)/SIRP-1alpha, a transmembrane glycoprotein with adhesion molecule characteristics (Y. Fujioka et al., Mol. Cell. Biol. 16:6887-6899, 1996; M. Tsuda et al., J. Biol. Chem. 273:13223-13229). Therefore, we asked whether SHP2-SHPS-1 complexes participate in integrin signaling. SHPS-1 tyrosyl phosphorylation increased upon plating of murine fibroblasts onto specific extracellular matrices. Both in vitro and in vivo studies indicate that SHPS-1 tyrosyl phosphorylation is catalyzed by Src family protein tyrosine kinases (PTKs). Overexpression of SHPS-1 in 293 cells potentiated integrin-induced mitogen-activated protein kinase (MAPK) activation, and potentiation required functional SHP-2. To further explore the role of SHP-2 in integrin signaling, we analyzed the responses of SHP-2 exon 3(-/-) and wild-type cell lines to being plated on fibronectin. Integrin-induced activation of Src family PTKs, tyrosyl phosphorylation of several focal adhesion proteins, MAPK activation, and the ability to spread on fibronectin were defective in SHP-2 mutant fibroblasts but were restored upon SHP-2 expression. Our data suggest a positive-feedback model in which, upon integrin engagement, basal levels of c-Src activity catalyze the tyrosyl phosphorylation of SHPS-1, thereby recruiting SHP-2 to the plasma membrane, where, perhaps by further activating Src PTKs, SHP-2 transduces positive signals for downstream events such as MAPK activation and cell shape changes.