SHP-2, a SRC homology 2 domain-containing protein tyrosine phosphatase, mediates activation of Ras and mitogen-activated protein kinase by various mitogens and cell adhesion. Inhibition of endogenous SHP-2 by overexpression of a catalytically inactive (dominant negative) mutant in Chinese hamster ovary cells or Rat-1 fibroblasts has now been shown to induce a marked change in cell morphology (from elongated to less polarized) that is accompanied by substantial increases in the numbers of actin stress fibers and focal adhesion contacts. Overexpression of the SHP-2 mutant also increased the strength of cell-substratum adhesion and resulted in hyperphosphorylation of SHPS-1, a substrate of SHP-2 that contributes to cell adhesion-induced signaling. Inhibition of SHP-2 also markedly increased the rate of cell attachment to and cell spreading on extracellular matrix proteins such as fibronectin and vitronectin, effects that were accompanied by enhancement of adhesion-induced tyrosine phosphorylation of paxillin and p130Cas. In addition, cell migration mediated by fibronectin or vitronectin, but not that induced by insulin, was impaired by overexpression of the SHP-2 mutant. These results suggest that SHP-2 plays an important role in the control of cell shape by contributing to cytoskeletal organization, and that it is an important regulator of integrin-mediated cell adhesion, spreading, and migration as well as of tyrosine phosphorylation of focal adhesion contact-associated proteins.