CD8(+) tumor-infiltrating lymphocytes (TIL) lack in vivo and in vitro lytic function due to a signaling deficit characterized by failure to flux calcium or activate tyrosine kinase activity upon contact with cognate tumor cells. Although CD3 zeta is phosphorylated by conjugation in vitro with cognate tumor cells, showing that TIL are triggered, PLC gamma-1, LAT, and ZAP70 are not activated and LFA-1 is not affinity-matured, and because p56(lck) is required for LFA-1 activation, this implies that the signaling blockade is very proximal. Here, we show that TIL signaling defects are transient, being reversed upon purification and brief culture in vitro, implying a fast-acting "switch". Biochemical analysis of purified nonlytic TIL shows that contact with tumor cells causes transient activation of p56(lck) ( approximately 10 s) which is rapidly inactivated. In contrast, tumor-induced activation of p56(lck) in lytic TIL is sustained coincident with downstream TCR signaling and lytic function. Shp-1 is robustly active in nonlytic TIL compared with lytic TIL, colocalizes with p56(lck) in nonlytic TIL, and inhibition of Shp-1 activity in lytic TIL in vitro blocks tumor-induced defective TIL cytolysis. Collectively, our data support the notion that contact of nonlytic TIL with tumor cells, and not with tumor-infiltrating myeloid-derived suppressor cells, causes activation of Shp-1 that rapidly dephosphorylates the p56(lck) activation motif (Y394), thus inhibiting effector phase functions.