Previous studies by our lab and others established that co-crosslinking sIg and IgG receptor FcgammaRIIb in B cells in a feedback suppression model (negative signaling) promoted tyrosine phosphorylation of the inositol 5-phosphatase SHIP and its interaction with Shc and that these events were associated with inhibition of the Ras pathway. We therefore hypothesized a competition model in which the SH2 domain of SHIP competes with that of Grb2 for binding to phospho-Shc to inhibit the Ras pathway. Here, we provide evidence consistent with this hypothesis. First, FcgammaRIIb-deficient B cells, which do not undergo SHIP tyrosine phosphorylation nor interaction with Shc, displayed an active Ras pathway under negative signaling conditions; reconstitution of FcgammaRIIb expression restored the block in Ras. Second, under conditions of negative signaling leading to SHIP-Shc interaction in wild-type B cells, we observed a profound reduction in the activation-induced association of Grb2 to Sos. Experiments reported here and elsewhere revealed the Grb2-Sos interaction required the engagement of the Grb2 SH2 domain by phospho-Shc. Third, we demonstrated that phospho-Shc cannot concomitantly bind Grb2 and SHIP, indicating that the two proteins competed for the same phospho-tyrosine residue on Shc. These data are consistent with the proposed competition model, and further indicate that the activation induced Grb2-Sos association is rate limiting for Ras activation.