Activation of the somatostatin receptor sst2, a member of the Gi protein-coupled receptor family, results in the stimulation of a protein-tyrosine phosphatase activity involved in the sst2-mediated growth inhibitory signal. Here, we report that SHP-1, a cytoplasmic protein-tyrosine phosphatase containing two Src homology 2 domains constitutively associated with sst2 as evidence by coprecipitation of SHP-1 protein with sst2, in Chinese hamster ovary cells coexpressing sst2 and SHP-1. Activation of sst2 by somatostatin resulted in a rapid dissociation of SHP-1 from sst2 accompanied by an increase of SHP-1 activity. SHP-1 was phosphorylated on tyrosine in control cells and somatostatin induced a rapid and transient dephosphorylation on tyrosine residues of the enzyme. Stimulation of SHP-1 activity by somatostatin was abolished by pertussis toxin pretreatment of cells. Gialpha3 was specifically immunoprecipitated by anti-sst2 and anti-SHP-1 antibodies, and somatostatin induced a rapid dissociation of Gialpha3 from sst2, suggesting that Gialpha3 may be involved in the sst2.SHP-1 complexes. Finally, somatostatin inhibited the proliferation of cells coexpressing sst2 and SHP-1, and this effect was suppressed in cells coexpressing sst2 and the catalytic inactive SHP-1 (C453S mutant). Our data identify SHP-1 as the tyrosine phosphatase associated with sst2 and demonstrate that this enzyme may be an initial key transducer of the antimitogenic signaling mediated by sst2.