To study the cis- and trans-acting factors that mediate programmed death 1 (PD-1) signaling in primary human CD4 T cells, we constructed a chimeric molecule consisting of the murine CD28 extracellular domain and human PD-1 cytoplasmic tail. When introduced into CD4 T cells, this construct mimics the activity of endogenous PD-1 in terms of its ability to suppress T cell expansion and cytokine production. The cytoplasmic tail of PD-1 contains two structural motifs, an ITIM and an immunoreceptor tyrosine-based switch motif (ITSM). Mutation of the ITIM had little effect on PD-1 signaling or functional activity. In contrast, mutation of the ITSM abrogated the ability of PD-1 to block cytokine synthesis and to limit T cell expansion. Further biochemical analyses revealed that the ability of PD-1 to block T cell activation correlated with recruitment of Src homology region 2 domain-containing phosphatase-1 (SHP-1) and SHP-2, and not the adaptor Src homology 2 domain-containing molecule 1A, to the ITSM domain. In TCR-stimulated T cells, SHP-2 associated with PD-1, even in the absence of PD-1 engagement. Despite this interaction, the ability of PD-1 to block T cell activation required receptor ligation, suggesting that colocalization of PD-1 with CD3 and/or CD28 may be necessary for inhibition of T cell activation.