Activating mutations in the Kit receptor tyrosine kinase have been identified in both rodent and human mast cell leukemia. One activating Kit mutation substitutes a valine for aspartic acid at codon 816 (D816V) and is frequently observed in human mastocytosis. Mutation at the equivalent position in the murine c-kit gene, involving a substitution of tyrosine for aspartic acid (D814Y), has been described in the mouse mastocytoma cell line P815. We have investigated the mechanism of oncogenic activation by this mutation. Expression of this mutant Kit receptor tyrosine kinase in a mast cell line led to the selective tyrosine phosphorylation of a 130-kDa protein and the degradation, through the ubiquitin-dependent proteolytic pathway, of a 65-kDa phosphoprotein. The 65-kDa protein was identified as the src homology domain 2 (SH2)-containing protein tyrosine phosphatase SHP-1, a negative regulator of signaling by Kit and other hematopoietic receptors, and the protein product of the murine motheaten locus. This mutation also altered the sites of receptor autophosphorylation and peptide substrate selectivity. Thus, this mutation activates the oncogenic potential of Kit by a novel mechanism involving an alteration in Kit substrate recognition and the degradation of SHP-1, an attenuator of the Kit signaling pathway.