Ligand occupancy of the alphaVbeta3 integrin is required for IGF-I receptor (IGF-IR) phosphorylation of an appropriate duration and for stimulation of IGF-I actions. In vascular smooth muscle cells (SMCs), the tyrosine phosphatase SHP-2 regulates the duration of IGF-IR phosphorylation and biological actions. We determined the role of ligand occupancy of the alphaVbeta3 integrin on beta3 phosphorylation and studied the role of beta3 phosphorylation in regulating both SHP-2 recruitment to the cell membrane and IGF-I-dependent biological responses. Vitronectin binding to alphaVbeta3 induced tyrosine phosphorylation of the beta3-subunit in subconfluent SMCs and was accompanied by increased association of SHP-2 with beta3. In confluent SMCs, the beta3-subunit was constitutively phosphorylated leading to basal binding of SHP-2. The Src kinase inhibitor PP2 caused a concentration-dependent decrease in beta3 phosphorylation and resulted in decreased SHP-2 association with beta3 and with the cell membrane. In contrast to control cells, SMCs expressing a mutant beta3 that had two tyrosines changed to phenylalanines showed a 89.9 +/- 1.2% decrease in beta3 phosphorylation. This decrease was associated with reduced SHP-2 binding to nonphosphorylated beta3 and a corresponding decrease in the membrane association of SHP-2. When IGF-I was added to cells expressing mutant beta3, SHP-2 was not recruited to the Src homology 2 domain-containing tyrosine phosphatase substrate-1 or to IGF-IR. This was associated with prolonged IGF-IR phosphorylation and an impaired cellular DNA synthesis response to IGF-I. These results define a mechanism by which ligand occupancy of alphaVbeta3 regulates the SMC response to IGF-I.