Receptor protein tyrosine kinases (RTKs) transmit downstream signals via interactions with secondary signaling molecules containing SH2 domains. Although many SH2-phosphotyrosyl interactions have been defined in vitro, little is known about the physiological significance of specific RTK/SH2 interactions in vivo. Also, little is known about the mechanisms by which specific RTKs interact with and/or are regulated by specific protein tyrosine phosphatases (PTPs). To address such issue, we carried out a genetic analysis of the previously reported biochemical interaction between the RTK c-Kit, encoded at the W locus, and the SH2-containing non-transmembrane PTP SHP1, encoded at the motheaten (me) locus (1). Mice carrying a kinase-defective allele of c-Kit (Wv/+) were crossed with me/+ mice, which carry one effectively null allele of SHP1, and then backcrossed to generate all possible allelic combinations. Our results indicate strong intergenic complementation between these loci in hematopoietic progenitor cells. Compared to progenitors purified from normal mice, bone marrow progenitor cells (lin-) from me/me mice markedly hyper-proliferated in response to Kit ligand (KL). stimulation. Superimposition of the me/me genotype increased the number of one marrow-derived CFU-E from Wv/+ mice. Conversely, the presence of one or two copies of Wv decreased the number of macrophages and granulocytes in me/me lung, skin, peripheral blood and bone marrow, thereby decreasing the severity of the me/me phenotype. The decrease in dermal mast cells in Wv/Wv mice was rescued to levels found in Wv/+mice by superimposition of the me/me genotype. Surprisingly, however, the presence or absence of SHP1 had no effect on the proliferative response of bone marrow-derived cultured mast cells to KL or IL3 ex vivo. Nevertheless, the immediate-early response to KL stimulation, as measured by KL-induced tyrosyl phosphorylation, was substantially increased in mast cells from Wv/+:me/me compared to Wv/ +:+/+ mice, strongly suggesting that SHP1 directly dephosphorylates and regulates c-Kit. Taken together, our results establish that SHP1 negatively regulates signaling from c-Kit in vivo, but in a cell type-specific manner.