The Src homology domain 2 (SH2)-containing tyrosine phosphatase SHP-2 has been implicated in the regulation of the phosphatidylinositol 3'-kinase (PI3K)/Akt pathway. The ability of SHP-2 to regulate the PI3K/Akt pathway is suggested to result in the positive effect of SHP-2 on cell survival. Whether SHP-2 regulates insulin-like growth factor-1 (IGF-1)-dependent activation of Akt at the level of PI3K has yet to be established. Furthermore, the identification of the down-stream apoptotic target engaged by SHP-2 in cell survival also has yet to be determined. Here, we show that overexpression of a catalytically inactive mutant of SHP-2 inhibited insulin-like growth factor-1 (IGF-1)-dependent PI3K and Akt activation. Consistent with the observation that SHP-2 participates in pro-survival signaling fibroblasts expressing a deletion within exon 3 of SHP-2, which results in a truncation of the amino-terminus SH2 domain (SHP-2(Ex3-/-)), were hypersensitive to etoposide-induced cell death. SHP-2(Ex3-/-) fibroblasts exhibited enhanced levels of etoposide-induced caspase 3 activity as compared to wild-type fibroblasts and the enhanced level of caspase 3 activity was suppressed by a caspase 3-specific inhibitor. Re-introduction of wild-type SHP-2 into the SHP-2(Ex3-/-) fibroblasts rescued the hypersensitivity to etoposide-induced caspase 3 activation. The effects of abrogating SHP-2 function on cell survival were not specific to the loss of the amino-terminus SH2 domain of SHP-2 since RNAi-mediated knock-down of SHP-2 also reduced cell survival. Taken together, these data indicate that the catalytic activity of SHP-2 is required to regulate the PI3K/Akt pathway and thus likely participates in anti-apoptotic signaling by suppressing caspase 3-mediated apoptosis.