Activation of the cellular Src tyrosine kinase depends upon dephosphorylation of the carboxyl-terminal inhibitory tyrosine phosphorylation site. Herein we show that Src isolated from human platelets and Jurkat T cells is preferentially dephosphorylated at its inhibitory phosphotyrosine site by the SHP-1 tyrosine phosphatase. The data also revealed association of Src with SHP-1 in both platelets and lymphocytes and the capacity of Src to phosphorylate SHP-1 and interact with the SHP-1 NH2-terminal SH2 domain in vitro. Analysis of Src activity in thymocytes from SHP-1-deficient motheaten and viable motheaten mice revealed this kinase activity to be substantially lower than that detected in wild-type thymocytes, but to be enhanced by in vitro exposure to SHP-1. Similarly, immunoblotting analysis of thymocyte Src expression before and after selective depletion of active Src protein indicated that the proportion of active relative to inactive Src protein is markedly reduced in motheaten compared with wild-type cells. These observations, together with the finding of reduced Src activity in HEY cells expressing a dominant negative form of SHP-1, provide compelling evidence that SHP-1 functions include the positive regulation of Src activation.