Activation of the SH2 domain-possessing protein-tyrosine phosphatase SHP-1 by acidic phospholipids as phosphatidic acid (PA) has been described earlier and suggested to participate in regulation of SHP-1 activity toward cellular substrates. The mechanism of this activation is poorly understood. Direct binding of phosphatidic acid to recombinant SHP-1 could be demonstrated by measuring the extent of [(14)C]PA binding in a chromatographic assay, by measuring the extent of binding of SHP-1 to PA-coated ELISA plates or silica beads (TRANSIL), and by spectroscopic assays employing fluorescently labeled PA liposomes. In addition to PA, phosphatidylinositol 3,4, 5-trisphosphate (PIP3), dipalmitoylphosphatidylglycerol, phosphatidylinositol 4,5-bisphosphate, and phosphatidylserine (PS) were found to bind to SHP-1, albeit to a lesser extent. A high-affinity binding site for PA and PIP3 was mapped to the 41 C-terminal amino acids of SHP-1. This site was absent from the related protein-tyrosine phosphatase SHP-2 and conferred activation of SHP-1 by PA toward two different substrates at low lipid concentrations. A SHP-1 mutant missing this binding site could, however, still be activated toward phosphorylated myelin basic protein as a substrate at high PA concentrations. This activation is likely to be mediated by a second, low-affinity binding site for PA in the N-terminal part of SHP-1 within the SH2 domains. High-affinity phospholipid binding to the C-terminus of SHP-1 may present a specific mechanism of regulating activity and/or cellular localization.