The protein-tyrosine phosphatase Shp1 is expressed ubiquitously in hematopoietic cells and is generally viewed as a negative regulatory molecule. Mutations in Ptpn6, which encodes Shp1, result in widespread inflammation and premature death, known as the motheaten (me) phenotype. Previous studies identified Shp1 as a negative regulator of TCR signaling, but the severe systemic inflammation in me mice may have confounded our understanding of Shp1 function in T cell biology. To define the T cell–intrinsic role of Shp1, we characterized mice with a T cell–specific Shp1 deletion (Shp1fl/fl CD4-cre). Surprisingly, thymocyte selection and peripheral TCR sensitivity were unaltered in the absence of Shp1. Instead, Shp1(fl/fl) CD4-cre mice had increased frequencies of memory phenotype T cells that expressed elevated levels of CD44. Activation of Shp1-deficient CD4⁺ T cells also resulted in skewing to the Th2 lineage and increased IL-4 production. After IL-4 stimulation of Shp1- deficient T cells, Stat 6 activation was sustained, leading to enhanced Th2 skewing. Accordingly, we observed elevated serum IgE in the steady state. Blocking or genetic deletion of IL-4 in the absence of Shp1 resulted in a marked reduction of the CD44hi population. Therefore, Shp1 is an essential negative regulator of IL-4 signaling in T lymphocytes.