Abstract Phosphatase Src homology region 2 domain-containing phosphatase 1 (SHP-1)-deficient mice display an allergic asthma phenotype that is largely IL-13 and STAT6 dependent. The cell types responsible for the Th2 phenotype have not been identified. We hypothesized that SHP-1 deficiency leads to mast cell dysregulation and increased production and release of mediators and Th2 cytokines, leading to the allergic asthma phenotype. We examined SHP-1 regulation of mast cell differentiation, survival, and functional responses to stimulation using bone marrow-derived mast cells from viable motheaten (mev) mice. We assessed pulmonary phenotypical changes in mev mice on the mast cell-deficient KitW-Sh genetic background. The results showed that SHP-1 deficiency led to increased differentiation and survival, but reduced proliferation, of mast cells. SHP-1–deficient mast cells produced and released increased amounts of mediators and Th2 cytokines IL-4 and -13 spontaneously and in response to H2O2, LPS, and FcεI cross-linking, involving c-Kit–dependent and –independent processes. The FcεRI signaling led to binding of SHP-1 to linker for activation of T cells 2 and enhanced linker for activation of T cells 2 phosphorylation in mev bone marrow-derived mast cells. Furthermore, the number of mast cells in the lung tissue of mev mice was increased and mast cell production and release of Th2 cytokines were distinctly increased upon FcεRI stimulation. When backcrossed to the KitW-Sh background, mev mice had markedly reduced pulmonary inflammation and Th2 cytokine production. These findings demonstrate that SHP-1 is a critical regulator of mast cell development and function and that SHP-1–deficient mast cells are able to produce increased Th2 cytokines and initiate allergic inflammatory responses in the lung.