Hyperactivation of the transcription factor Stat5 leads to various leukemias. Stat5 activity is regulated by the protein phosphatase SHP-1 in a phospholipase C (PLC)-β3-dependent manner. Thus, PLC-β3-deficient mice develop myeloproliferative neoplasm, like Lyn (Src family kinase)- deficient mice. Here we show that Lyn/PLC-β3 doubly deficient lyn(-/-);PLC-β3(-/-) mice develop a Stat5-dependent, fatal myelodysplastic/myeloproliferative neoplasm, similar to human chronic myelomonocytic leukemia (CMML). In hematopoietic stem cells of lyn(-/-);PLC-β3(-/-) mice that cause the CMML-like disease, phosphorylation of SHP-1 at Tyr(536) and Tyr(564) is abrogated, resulting in reduced phosphatase activity and constitutive activation of Stat5. Furthermore, SHP-1 phosphorylation at Tyr(564) by Lyn is indispensable for maximal phosphatase activity and for suppression of the CMML-like disease in these mice. On the other hand, Tyr(536) in SHP-1 can be phosphorylated by Lyn and another kinase(s) and is necessary for efficient interaction with Stat5. Therefore, we identify a novel Lyn/PLC-β3-mediated regulatory mechanism of SHP-1 and Stat5 activities.