The oncogenic Bcr-Abl variant of the c-Abl tyrosine kinase transforms cells by a mechanism dependent on activation of the stress-activated protein kinase (SAPK). Other work has shown that c-Abl interacts with the SHPTP1 protein tyrosine phosphatase in induction of SAPK activity by genotoxic stress. The present studies demonstrate that Bcr-Abl binds constitutively to SHPTP1. We show that Bcr-Abl phosphorylates SHPTP1 on C-terminal Y536 and Y564 sites. The functional significance of the Bcr-Abl/SHPTP1 interaction is supported by the finding that SHPTP1 regulates Bcr-Abl-induced SAPK activity. Importantly, SHPTP1 also decreases Bcr-Abl-dependent transformation of fibroblasts. These findings indicate that SHPTP1 functions as a tumor suppressor in cells transformed by Bcr-Abl.