Signaling through the B cell antigen receptor (BCR) is negatively regulated by the SH2 domain-containing protein-tyrosine phosphatase SHP-1, which requires association with tyrosine-phosphorylated proteins for activation. Upon BCR ligation, SHP-1 has been shown to associate with the BCR, the cytoplasmic protein-tyrosine kinases Lyn and Syk, and the inhibitory co-receptors CD22 and CD72. How SHP-1 is activated by BCR ligation and regulates BCR signaling is, however, not fully understood. Here we demonstrate that, in the BCR-expressing myeloma line J558L mu 3, CD72 expression reduces the BCR ligation-induced phosphorylation of the BCR component Ig alpha/Ig beta and its cytoplasmic effectors Syk and SLP-65. Substrate phosphorylation was restored by expression of dominant negative mutants of SHP-1, whereas the SHP-1 mutants failed to enhance phosphorylation of the cellular substrates in the absence of CD72. This indicates that SHP-1 is efficiently activated by CD72 but not by other pathways in J558L mu m3 cells and that inhibition of SHP-1 specifically activated by CD72 reverses CD72-induced dephosphorylation of cellular substrates in these cells. Taken together, BCR-induced SHP-1 activation is likely to require inhibitory co-receptors such as CD72, and SHP-1 appears to mediate the negative regulatory effect of CD72 on BCR signaling by dephosphorylating Ig alpha/Ig beta and its downstream signaling molecules Syk and SLP-65.