The long cytoplasmic tail (CT) isoforms of carcinoembryonic Ag-related cell adhesion molecule 1 (CEACAM1) are expressed on activated human T cells and possess two ITIM motifs in the CT. These isoforms of CEACAM1 are inhibitory for T cell responses initiated by the TCR/CD3 complex with the inhibition dependent upon the ITIMs of CEACAM1 and Src homology 2 domain-containing phosphatase 1 (SHP-1). However, the mechanism by which this inhibition occurs in T cells is unknown. We demonstrate here that the Src family kinase, Lck, and the ability of CEACAM1 to bind homophilically are required for the ITIM phosphorylation of CEACAM1 that is a prerequisite for CEACAM1 association with SHP-1. We further show that CEACAM1 associates with and recruits SHP-1 to the TCR/CD3 complex leading to decreased phosphorylation of CD3-zeta and ZAP-70 and consequently decreased activation of the elements downstream of ZAP-70. This is physiologically relevant because extinction of SHP-1 expression or blockade of homophilic binding by CEACAM1 using a Fab that specifically recognizes the homophilic binding region of human CEACAM1 increases the cytolytic function initiated by the TCR/CD3 complex. These studies show that long CT isoforms of CEACAM1 orchestrate an inhibitory program that abrogates extremely proximal events downstream of the TCR/CD3 complex by focusing on the activation of ZAP-70.