This study provides biochemical and functional evidence pertaining to the role of the intracellular protein tyrosine phosphatase, SHP-1, in influencing thresholds for TCR activation. Although the loss of SHP-1 in thymocytes from motheaten mice had minimal effects on the initial rise of cytosolic Ca(2+) concentration following TCR triggering, the post-stimulation equilibrium levels of Ca(2+) were consistently elevated. In keeping with a SHP-1 effect on PLCgamma function, IP3 generation was increased in SHP-1 deficient thymocytes. Importantly, we demonstrate that loss of SHP-1 results in a relaxation of the normally stringent co-stimulatory requirements for IL-2 production. SHP-1 deficient single-positive CD4(+) thymocytes revealed a significantly enhanced capacity to produce IL-2 in response to anti-CD3 stimulation alone. In contrast, the simultaneous triggering of CD3 and CD28 was required for equivalent IL-2 production in control single-positive CD4(+) thymocytes. Furthermore, SHP-1 deficient thymocytes generated an increased and prolonged proliferative response to anti-CD3 stimulation alone. In addition, the simultaneous triggering of CD28 and CD3 resulted in equivalent proliferative responses in SHP-1-deficient and control thymocytes, suggesting that a strong co-stimulatory signal is able to override the effect of SHP-1 loss on TCR hyperresponsiveness. Collectively, these results suggest that SHP-1, rather than acting directly on TCR signaling, may indirectly raise thresholds for TCR triggering by modulating co-stimulatory signals.