Regulation of cell migration is an important step for the development of branching tubule morphogenesis in collagen gel. Here, we showed that discoidin domain receptor (DDR) 1a/b inhibited collagen-induced tyrosine phosphorylation of signal transducers and activators of transcription (Stat) 1/3 and cell migration triggered by alpha2beta1-integrin. Overexpression of DDR1a/b increased the interaction of DDR1 with SHP-2 and up-regulated the tyrosine phosphatase activity of SHP-2. Expression of catalytically inactive SHP-2 in DDR1-transfected cells restored the tyrosine phosphorylation of Stat3 and cell migration. We demonstrated that the Src homology-2 (SH2)-SH2 and phosphotyrosyl phosphatase (PTP) domains of SHP-2 were responsible for interaction with DDR1 and that both tyrosine phosphorylation sites 703 and 796 of DDR1 were essential for it to bind with SHP-2. Mutation of tyrosine 703 or 796 of DDR1 abolished the ability of DDR1 to inhibit the tyrosine phosphorylation of Stat1 and Stat3 and restored collagen-induced cell migration and hepatocyte growth factor-induced branching tubulogenesis in collagen gel. Together, these results demonstrate that SHP-2 is required for the DDR1-induced suppression of Stat1 and Stat3 tyrosine phosphorylation, cell migration, and branching tubulogenesis.