The selection events shaping T cell development in the thymus represent the outcome of TCR-driven intracellular signaling cascades evoked by Ag receptor interaction with cognate ligand. In view of data indicating TCR-evoked thymocyte proliferation to be negatively modulated by the SHP-1 tyrosine phosphatase, a potential role for SHP-1 in regulating selection processes was investigated by analysis of T cell development in H-Y TCR transgenic mice rendered SHP-1 deficient by introduction of the viable motheaten mutation or a dominant negative SHP-1-encoding transgene. Characterization of thymocyte and peripheral T cell populations in H-Y TCR-viable motheaten mice revealed TCR-evoked proliferation as well as the positive and negative selection of H-Y-specific thymocytes to be enhanced in these mice, thus implicating SHP-1 in the negative regulation of each of these processes. T cell selection processes were also augmented in H-Y TCR mice carrying a transgene driving lymphoid-restricted expression of a catalytically inert, dominant-negative form of SHP-1. SHP-1-negative effects on thymocyte TCR signaling were not influenced by co-cross-linking of the CD28 costimulatory and/or CTLA-4 inhibitory receptors and appear, accordingly, to be realized independently of these comodulators. These observations indicate that SHP-1 raises the signaling threshold required for both positive and negative selection and reveal the inhibitory effects of SHP-1 on TCR signaling to be cell autonomous. The demonstrated capacity for SHP-1 to inhibit TCR-evoked proliferation and selection indicate SHP-1 modulatory effects on the magnitude of TCR-generated signal to be a key factor in determining the cellular consequences of TCR-ligand interaction.