Insulin-like growth factor I (IGF-I) stimulates smooth muscle cell (SMC) proliferation, and the mitogen-activated protein kinase (MAPK) pathway plays an important role in mediating IGF-I-induced mitogenic signaling. Our prior studies have shown that recruitment of Src homology 2 domain tyrosine phosphatase (SHP-2) to the membrane scaffolding protein Src homology 2 domain-containing protein tyrosine phosphatase substrate-1 (SHPS-1) is required for IGF-I-dependent MAPK activation. The current studies were undertaken to define the upstream signaling components that are required for IGF-I-stimulated MAPK activation and the role of SHPS-1 in regulating this process. The results show that IGF-I-induced Shc phosphorylation and its subsequent binding to Grb2 is required for sustained phosphorylation of MAPK and increased cell proliferation in SMCs. Furthermore, for Shc to be phosphorylated in response to IGF-I requires that Shc must associate with SHPS-1 and this association is mediated in part by SHP-2. Preincubation of cells with a peptide that contains a phospho-tyrosine binding motif sequence derived from SHPS-1 inhibited IGF-I-stimulated SHP-2 transfer to SHPS-1, the association of Shc with SHPS-1, and IGF-I-dependent Shc phosphorylation. Expression of an SHPS-1 mutant that did not bind to Shc or SHP-2 resulted in decreased Shc and MAPK phosphorylation in response to IGF-I. In addition, SMCs expressing a mutant form of the beta3 subunit of the alphaVbeta3, which results in impairment of SHP-2 transfer to SHPS-1, also showed attenuated IGF-I-dependent Shc and MAPK phosphorylation. Further analysis showed that Shc and SHP-2 can be coimmunoprecipitated after IGF-I stimulation. A cell-permeable peptide that contained a polyproline sequence from Shc selectively inhibited Shc/SHP-2 association and impaired Shc but not SHP-2 binding to SHPS-1. Exposure to this peptide also inhibited IGF-I-stimulated Shc and MAPK phosphorylation. Cells expressing a mutant form of Shc with the four prolines substituted with alanines showed no Shc/SHPS-1 association in response to IGF-I. We conclude that SHPS-1 functions as an anchor protein that recruits both Shc and SHP-2 and that their recruitment is necessary for IGF-I-dependent Shc phosphorylation, which is required for an optimal mitogenic response in SMCs.