Intracellular mechanism(s) that contribute to promiscuous signaling via oncogenic KIT in systemic mastocytosis and acute myelogenous leukemia are poorly understood. We show that SHP2 phosphatase is essential for oncogenic KIT-induced growth and survival in vitro and myeloproliferative disease (MPD) in vivo. Genetic disruption of SHP2 or treatment of oncogene-bearing cells with a novel SHP2 inhibitor alone or in combination with the PI3K inhibitor corrects MPD by disrupting a protein complex involving p85α, SHP2, and Gab2. Importantly, a single tyrosine at position 719 in oncogenic KIT is sufficient to develop MPD by recruiting p85α, SHP2, and Gab2 complex to oncogenic KIT. Our results demonstrate that SHP2 phosphatase is a druggable target that cooperates with lipid kinases in inducing MPD.