Somatostatin receptor sst2 is an inhibitory G protein-coupled receptor, which inhibits normal and tumor cell growth by a mechanism involving the tyrosine phosphatase SHP-1. We reported previously that SHP-1 associates transiently with and is activated by sst2 and is a critical component for sst2 growth inhibitory signaling. Here, we demonstrate that in Chinese hamster ovary cells expressing sst2, SHP-1 is associated at the basal level with the neuronal nitric oxide synthase (nNOS). Following sst2 activation by the somatostatin analog RC-160, SHP-1 rapidly recruits nNOS tyrosine dephosphorylates and activates it. The resulting NO activates guanylate cyclase and inhibits cell proliferation. Coexpression of a catalytically inactive SHP-1 mutant with sst2 blocks RC-160-induced nNOS dephosphorylation and activation, as well as guanylate cyclase activation. In mouse pancreatic acini, RC-160 treatment reduces nNOS tyrosine phosphorylation accompanied by an increase of its activity. By opposition, in acini from viable motheaten (mev/mev) mice, which express a markedly inactive SHP-1, RC-160 has no effect on nNOS activity. Finally, expression of a dominant-negative form of nNOS prevents both RC-160-induced p27 up-regulation and cell proliferation inhibition. We therefore identified nNOS as a novel SHP-1 substrate critical for sst2-induced cell-growth arrest.