c-Src plays an important role in bone resorption by osteoclasts. Here, we show using wild-type and ship(-/-) osteoclasts that Src homology 2 (SH2)-containing 5'-inositol phosphatase (SHIP) appeared to negatively regulate bone resorption activated by c-Src. SHIP was found to localize to podosomes under the influence of c-Src, and the presence of either the amino-terminal region comprising the SH2 domain or the carboxyl-terminal region was sufficient for its localization. Although SHIP lacking a functional SH2 domain was still found in podosomes, it could not rescue the hyper-bone resorbing activity and hypersensitivity to receptor activator of nuclear factor-kappaB ligand in ship(-/-) osteoclasts, suggesting that the localization of SHIP to podosomes per se was not sufficient and the SH2 domain was indispensable for its function. Cas and c-Cbl, known to function in podosomes of osteoclasts, were identified as novel proteins binding to the SHIP SH2 domain by mass spectrometric analysis, and this interaction appeared to be dependent on the Src kinase activity. These results demonstrate that c-Src enhances the translocation of SHIP to podosomes and regulates its function there through the SH2 domain, leading to an attenuation of bone resorption.