The tyrosine phosphatase SHP-1 (Src homology phosphatase-1) has been widely implicated as a negative regulator of signalling in immune cells. We have investigated in detail the role of SHP-1 in interleukin-3 (IL-3) signal transduction by inducibly expressing wild-type (WT), C453S (substrate-trapping) and R459M (catalytically inactive) forms of SHP-1 in the IL-3-dependent cell line BaF/3. Expression of WT SHP-1 had little impact on IL-3-induced proliferation, but enhanced apoptosis following IL-3 withdrawal. Expression of R459M SHP-1 increased the proliferative response of BaF/3 cells to IL-3 and increased cell survival at low doses of IL-3 and following IL-3 withdrawal. Investigation into the biochemical consequences resulting from expression of these SHP-1 variants demonstrated that the beta chain of the IL-3 receptor (Aic2A) was hypo-phosphorylated in cells expressing WT SHP-1 and hyper-phosphorylated in those expressing R459M SHP-1. Further, ectopic expression of the trapping mutant, C453S SHP-1, protected Aic2A from dephosphorylation, suggesting that Aic2A is a SHP-1 substrate in BaF/3 cells. Examination of overall levels of tyrosine phosphorylation demonstrated that they were not perturbed in these transfectants. Activation-specific phosphorylation of STAT (signal transducer and activator of transcription) 5a/b, protein kinase B and ERK (extracellular-signal-regulated kinase)-1 and -2 was also unaffected by expression of WT or R459M SHP-1. However, overall levels of IL-3-induced tyrosine phosphorylation of STAT5 were reduced upon expression of WT SHP-1 and increased when R459M SHP-1 was expressed, consistent with STAT5 being a potential SHP-1 substrate. These results demonstrate that SHP-1 acts to negatively regulate IL-3-driven survival and proliferation, potentially via regulation of tyrosine phosphorylation of Aic2A and STAT5.