Accumulating evidence indicates that the Src homology 2-containing tyrosine phosphatase 2 (SHP-2) plays an important role in signal transduction through receptor tyrosine kinase and cytokine receptors. In most models, SHP-2 appears to be a positive mediator of signaling. However, coligation of Fc gamma RIIB1 with B cell Ag receptors (BCR) inhibits BCR-mediated signaling by a mechanism that may involve recruitment of phosphatases SHP-1, SHP-2, and the SH2 containing inositol 5'phosphatase (SHIP) to the phosphorylated Fc gamma RIIB1 immunoreceptor tyrosine-based inhibitory motif. The role of SHP-2 in BCR-mediated cell activation and in Fc gamma RIIB1-mediated inhibitory signaling is unclear. In this study we assessed the association of SHP-2 with phosphotyrosine-containing cellular protein(s) before and after stimulation through these receptors. BCR stimulation induced the association of SHP-2 with a single major tyrosyl-phosphorylated molecule (pp120) that had an apparent molecular mass of 120 kDa. Coligation of Fc gamma RIIB1 with BCR led to a rapid decrease in SHP-2 association with pp120. Analysis of the subcellular localization of pp120 showed that the complex of SHP-2 and tyrosyl-phosphorylated p120 occurs predominantly in the cytosol. Furthermore, the binding of the two molecules was mediated by the interaction of tyrosyl-phosphorylated p120 with the SHP-2 N-terminal SH2 domain. These findings indicate that SHP-2 and pp120 function in BCR signaling, and this function may be inhibited by Fc gamma RIIB1 signaling.