Src homology 2 domain-containing protein tyrosine phosphatase-1 (SHP-1) plays an important role in T and B lymphocyte signaling; however, the function of SHP-1 in Th cell differentiation, in particular, the Th1 response, has not been defined. In this study, we provide evidence that SHP-1 phosphatase negatively regulates Th1 cell development and IFN-gamma production. Compared with the wild-type control, anti-CD3-activated mouse T lymphocytes carrying the motheaten viable mutation in the SHP-1 gene produced a significantly increased amount of IFN-gamma in the presence of IL-12. This increase was also seen at the basal level without IL-12 addition. Similarly, Th1 cell differentiation and proliferation of anti-CD3-activated SHP-1 mutant lymph node cells in the presence or absence of IL-12 were markedly enhanced, indicating a negative role for SHP-1 phosphatase in such lymphocyte activities. Interestingly, IL-12-induced activation of Jak2 and STAT4, critical components for IL-12-mediated cellular responses, was shortened or attenuated in mutant T cells. Together these results suggest that SHP-1 negatively regulates Th1 cell development and functions through a mechanism that is not directly related to IL-12 signaling.