The intracellular Src homology 2 (SH2) domain-containing protein tyrosine phosphatase (SHP-1) is a negative regulator of cell signaling and contributes to the establishment of TCR signaling thresholds in both developing and mature T lymphocytes. Although there is much functional data implicating SHP-1 as a regulator of TCR signaling, the molecular basis for SHP-1 activation in T lymphocytes is poorly defined. A modification of the yeast two-hybrid system was employed to identify in T cells phosphotyrosine-containing proteins capable of binding the SH2 domains of SHP-1. From this yeast tri-hybrid screen, the p85beta subunit of phosphatidylinositol 3-kinase and the immunoreceptor tyrosine-based inhibitory motif-containing receptors, leukocyte-associated Ig-like receptor-1 (LAIR-1) and programmed death-1 (PD-1), were identified. Coimmunoprecipitation studies demonstrated that the exclusive phosphotyrosine-containing protein associated with SHP-1 in Jurkat T cells under physiological conditions is LAIR-1. Significantly, this interaction is constitutive and was detected only in the membrane-enriched fraction of cell lysates. Ligand engagement of the SH2 domains of SHP-1 is a prerequisite to activation of the enzyme, and, consistent with an association with LAIR-1, SHP-1 was found to be constitutively active in unstimulated Jurkat T cells. Importantly, a constitutive interaction between LAIR-1 and SHP-1 was also detected in human primary T cells. These results illustrate the sustained recruitment and activation of SHP-1 at the plasma membrane of resting human T cells by an inhibitory receptor. We propose that this mechanism may exert a constitutive negative regulatory role upon T cell signaling.