NK cell function is negatively regulated by MHC class I-specific inhibitory receptors. Transduction of the inhibitory signal involves protein tyrosine phosphatases such as SHP-1 (SH2-containing protein tyrosine phosphatase-1). To investigate the role of SHP-1 for NK cell development and function, we generated mice expressing a catalytically inactive, dominant-negative mutant of SHP-1 (dnSHP-1). In this paper we show that expression of dnSHP-1 does not affect the generation of NK cells even though MHC receptor-mediated inhibition is partially impaired. Despite this defect, these NK cells do not kill syngeneic, normal target cells. In fact dnSHP-1-expressing NK cells are hyporesponsive toward MHC-deficient target cells, suggesting that non-MHC-specific NK cell activation is significantly reduced. In contrast, these NK cells mediate Ab-dependent cell-mediated cytotoxicity and prevent the engraftment with beta2-microglobulin-deficient bone marrow cells. A similar NK cell phenotype is observed in viable motheaten (mev) mice, which show reduced SHP-1 activity due to a mutation in the Shp-1 gene. In addition, NK cells in both mouse strains show a tendency to express more inhibitory MHC-specific Ly49 receptors. Our results demonstrate the importance of SHP-1 for the generation of functional NK cells, which are able to react efficiently to the absence of MHC class I molecules from normal target cells. Therefore, SHP-1 may play an as-yet-unrecognized role in some NK cell activation pathways. Alternatively, a reduced capacity to transduce SHP-1-dependent inhibitory signals during NK cell development may be compensated by the down-modulation of NK cell triggering pathways.